Financial Markets and the Shadow of 1987: Debt, AI, and the Risk No One Wants to Face

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Financial Markets and the Shadow of 1987: Debt, AI, and the Risk No One Wants to Face

Introduction

While markets obsess over tech valuations and AI-driven rallies, former Treasury Secretary Robert Rubin is urging Wall Street to remember a different moment in financial history: October 19, 1987 — Black Monday. His warning is not about AI stocks themselves, but about the complacency that precedes sudden, severe market corrections.

The Debt Problem No One Wants to Touch

The U.S. national debt is approaching levels unseen in modern history — nearly 100% of GDP and rising. Rubin argues that official projections understate the problem, pointing to research suggesting debt could climb toward 130–140% of GDP in the coming decade.

The impacts are already visible: constrained public investment, pressure on national security budgets, and early signs of reduced business confidence.

Why 1987 Still Matters

Rubin’s comparison to 1987 is not an attempt to predict a crash but to highlight the danger of ignoring systemic risks. Then, as now, markets appeared to defy economic logic — until sudden reality intruded.

He sees a “quite high probability” that unsustainable policies will eventually force difficult, painful corrective actions. Whether the trigger is inflation, monetized debt, or global instability remains uncertain, but he warns that timing is impossible to predict.

AI Mania: A Parallel Risk

While some experts warn of an AI bubble, Rubin’s concern is less about valuations and more about the lack of political readiness for labor displacement. Even if predictions of mass white-collar automation are exaggerated, the risks are substantial — and under-addressed.

The AI sector also faces a financial challenge: massive data center investment without established revenue models, especially for non–tech-giant players.

A Political System Not Preparing for the Future

Rubin argues that addressing debt and long-term fiscal issues will require a mix of spending reductions and tax increases — an unpopular but necessary path. Relying on extraordinary future growth, he warns, is unrealistic.

Right now, the political system is avoiding hard decisions. The result, he says, is a market environment in which risks accumulate quietly — until they don’t.

Conclusion: Complacency Is the Real Threat

The real lesson of 1987, Rubin insists, is not that crashes are inevitable but that they are often preceded by long periods of eerily calm markets. Today’s combination of soaring debt, geopolitical risk, and a political system unwilling to act creates a fragile foundation beneath record stock prices. It may not break today or tomorrow — but history shows that ignoring structural problems only increases the cost when reality arrives.

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