Edward Dowd warns of an impending economic downturn in the United States and globally that has already begun, independent of geopolitical conflicts. He identifies key risks as an overvalued housing market, a bursting AI speculation bubble, and structural problems in China. U.S. home prices are estimated to be about 30 percent above fair value, while demand is weakening and supply is increasing. The number of sellers significantly exceeds buyers, transactions are declining, and rents are beginning to fall. Since the housing sector accounts for around 20 percent of the U.S. economy, substantial macroeconomic consequences are expected. At the same time, the private credit market is largely frozen, which is seen as an early warning signal of a broader credit contraction.
Financial markets also appear heavily overvalued. Valuations are at levels comparable to the dot-com bubble, while financing costs for AI investments are rising and expected returns are falling short of projections. The expansion of AI infrastructure is additionally constrained by physical limits such as energy and water shortages. This could lead to reduced investment and trigger a chain reaction affecting stock prices, consumption, and employment. A potential oil price shock could further worsen the situation, as rising costs meet weak demand, forcing companies to cut jobs. The U.S. Federal Reserve is caught in a dilemma between fighting inflation and stabilizing the economy.
China is also highlighted as an underestimated risk. The world’s second-largest economy is facing a severe real estate crisis, declining investment, and demographic decline. Economic output measured in U.S. dollars is stagnating, while the construction sector has sharply contracted. To offset domestic weakness, China is increasingly relying on exports, thereby exporting deflationary pressure to the global economy.