1. AI brokers take away all ‘friction’ in the economic system
The situation begins with AI brokers present process a “leap in functionality”. This has already occurred. Citrini refers to Anthropic’s Claude Code and OpenAI’s Codex, each of which have wowed customers with their efficiency in latest months.
The brokers dent software-as-a-service corporations comparable to Monday.com, Zapier and Asana, as a result of they provide companies a less expensive manner to do in-house duties , for instance, managing databases and organising workflows. This forces companies comparable to Oracle that rely on long-term contracts with clients into “a race to the backside” on pricing.
In the meantime the AI brokers wreak havoc elsewhere. The situation imagines each shopper deciding to use their very own private agent to transact and conduct enterprise. This utterly sidelines corporations that monetise “friction” in the economic system, comparable to journey and property businesses that function as middlemen in processes comparable to reserving holidays or shopping for property.
As an alternative of utilizing DoorDash, builders – and civilians – code up their very own meals supply apps, all of which compete, fragment the market, and destroy the margins of legacy companies. Enterprise for Uber and different ride-sharing apps additionally evaporates. As an alternative of utilizing Visa and Mastercard, AI brokers resolve to do all enterprise in cryptocurrency, as a result of transaction prices are cheaper. This guts conventional fee suppliers.
To Citrini, this is a logical endpoint for tireless AI brokers which have the time and functionality to optimise every thing. “Recurring app loyalty, the complete foundation of the enterprise mannequin, merely didn’t exist for a machine,” it writes.
In the actual world, Uber, DoorDash, Mastercard and American Specific shares have all fallen this week on the again of this situation.
2. Mass white-collar unemployment
Conventional narratives about progress envision the newest applied sciences creating new jobs as they destroy others. Not so with AI.
“AI is now a normal intelligence that improves at the very duties people would redeploy to. Displaced coders can not merely transfer to “AI administration” as a result of AI is already able to that,” Citrini writes.
As an alternative, white-collar employees redeploy en masse into unstable, gig-economy jobs – the writers describe a hypothetical good friend of theirs laid off from Salesforce driving for Uber. This in flip suppresses wages in the sector. The layoffs in the meantime drive down shopper spending. Corporations, struggling from weakening demand, resolve to make investments not in employees however in additional AI.
This is “a suggestions loop with no pure brake”, Citrini writes. The implications are far-reaching when the wallets of the 10% of US employees who account for 50% of shopper spending abruptly snap shut.
3. Ripples out into the broader economic system
The situation imagines that job losses and the evisceration of software program corporations will ripple out into broader markets in two methods: by way of defaults in personal credit score and a mortgage disaster.
Non-public credit score companies, or lenders that are not banks, have been concerned in restructuring quite a lot of software program companies in recent times, taking out loans primarily based on these companies’ predicted annual income far into the future. The instance Citrini provides is how Hellman & Friedman and Permira, an asset supervisor, took Zendesk, a software program firm, personal in 2022 for $10.2bn (£7.6bn). The acquisition included a mortgage structured round the assumption that Zendesk’s income can be steady.
After AI brokers, that assumption is now not holds.
This leads to “the largest personal credit score software program default” in historical past. It ought to be contained to software program, writes Citrini, however it isn’t, as a result of the capital on the stability sheets of the asset managers contains life insurance coverage insurance policies and “the financial savings of American households”.
Regulators downgrade this software program debt, which contributes to a 2027 crash.
In the meantime, there is a mortgage disaster. White-collar employees now not have white-collar jobs and are unable make repayments on their dwelling loans. “Individuals borrowed in opposition to a future they will now not consider in,” writes Citrini.
4. Downward spirals
All this makes the adverse suggestions loop worse.
The primary-order spiral is corporations shedding employees, which weakens demand and shopper spending, which in flip leads corporations to spend money on extra AI and lay off extra employees.
The second-order spiral is that the personal credit score turmoil and mortgage issues imply that markets tighten, shopper confidence is shaken, there are extra layoffs and extra mortgage impairment. “Every reinforces the different,” writes Citrini.
No monetary coverage instruments exist to handle this, as a result of the disaster that is taking place in the actual economic system – job losses and suppressed wages and spending – is not a results of tight monetary circumstances that central banks can handle, however of funding in AI, which makes “human intelligence much less scarce and fewer precious”.
The upshot is a crash in late 2027, pushed by the mortgage markets. It wipes out 57% of the S&P.
5. Occupy Silicon Valley and Ghost GDP
Citrini imagines the crash will throw governments right into a disaster they are going to be unable to handle.
“The system wasn’t designed for a disaster like this. The federal authorities’s income base is primarily a tax on human time. Individuals work, companies pay them, the authorities takes a lower,” it writes.
“The federal government wants to switch extra money to households at exactly the second it is gathering much less cash from them in taxes.”
AI corporations, nevertheless, are doing effectively. The massive-tech gamers who construct and promote AI fashions are making fabulous sums. As a result of their corporations make up a big share of the markets, the economic system appears nice on paper.
Citrini has a time period for this: ghost GDP, that is “output that reveals up in the nationwide accounts however by no means circulates by way of the actual economic system”.
The social cloth frays and a motion styled after Occupy Wall Road blockades the workplaces of AI companies for weeks on finish.
Citrini’s situation ends with a warning: “This is the first time in historical past the best asset in the economic system has produced fewer, not extra, jobs. No person’s framework matches, as a result of none have been designed for a world the place the scarce enter grew to become ample. So we now have to make new frameworks. Whether or not we construct them in time is the solely query that issues.”
The impression of the Citrini situation has startled some commentators, together with consultants who say AI instruments are not but able to enacting it. Stephen Innes, a managing associate at SPI Asset Administration, says AI thought items have grow to be market movers.
“We’ve watched this market take up wars, sticky inflation, banking tremors and tariff theatrics with a shrug, but a extensively circulated Substack thought piece is sufficient to knock it sideways,” he stated.
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