Corporate and personal credit surge simultaneously! SocGen’s top bear: The U.S. economy is teetering on the edge of a cliff, with its fate hinging entirely on AI.

Corporate and personal credit surge simultaneously! SocGen’s top bear: The U.S. economy is teetering on the edge of a cliff, with its fate hinging entirely on AI.

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The US economy is undergoing a profound structural transformation, shifting rapidly from the post-financial crisis era of deleveraging to a debt-driven growth model, with AI at the core of this change.

Albert Edwards, strategist at Société Générale, warned in his latest weekly report that the simultaneous surge in corporate and household credit is pushing the US economy toward a dangerous tipping point. According to UBS estimates, the scale of new credit in the US over the past year was about $800 billion, accounting for 2.6% of GDP, with the US leading more than half of the global credit pulse, and a significant portion stemming from financing needs related to AI projects.

Meanwhile, the US personal savings rate has dropped to an unusually low 2.6%, making consumption support increasingly fragile. Edwards stated bluntly that both consumption and investment are currently highly reliant on the assumption that the AI "bubble" will not burst.

The implication for the market is clear: Once AI-driven credit expansion reverses, the largest engine of the global credit pulse will suddenly stall, and risks of economic recession will rise sharply.

The US takes over global credit expansion, with AI as the main driving force

The global credit landscape is undergoing a historic reshaping. According to UBS data, measured by the proportion of 12-month net new credit to GDP, the global credit pulse has shifted from other economies previously leading, to a dominant "US story"—over the past year, the US contributed about $800 billion in incremental credit, making up more than half of the total global credit pulse.

The core driver of this round of credit expansion is AI capital expenditure. According to Bloomberg, the US economy is switching from the long-term deleveraging cycle after the 2008 financial crisis to a more "debt-driven" growth model. Morgan Stanley estimates that the total leverage ratio of hyperscale cloud companies doubled from 0.9x to 1.8x in just two quarters. Hyperscale cloud companies alone are expected to drive $600 billion in debt issuance by 2026.

Edwards pointed out that the speed at which AI-related debt is ballooning already shows characteristics of forming an independent debt bubble. He cited detailed data from the Fed's latest Z1 Flow of Funds report, emphasizing that the surge in corporate borrowing is supported by official data.

Savings rate falls to dangerous lows, consumption support on the brink

In his report, Edwards highlighted a risk relatively overlooked by the market: the simultaneous surge in US household borrowing. The current US personal savings rate has dropped to 2.6%, an unusually low historical level, and Edwards believes this level is "likely unsustainable."

He used the cartoon image of "Wile E. Coyote running off the edge of a cliff, briefly suspended in mid-air" to describe the current situation of US consumers—seemingly still operating, but actually without support. Even more alarming, all core indicators measuring real household income have shown year-on-year contraction.

Edwards’ logic is clear: The reason consumers can maintain about 2% consumption growth even as incomes decline is fundamentally due to a "wealth effect" from the stock market that makes them feel richer, thereby lowering their willingness to save. However, once asset prices fall, the savings rate will be forced to rebound—the history of savings rates surging above 30% after the 2020 COVID shock serves as a precedent. At that point, consumption will shrink alongside income, and the blow to the economy will far exceed current market expectations.

Liquidity shifts from financial markets to the real economy, asset valuations under pressure

Edwards also issued a more direct warning to investors: simultaneous leveraging by companies and households means large amounts of liquidity are being "siphoned" from financial markets into the real economy, which threatens currently high asset valuations.

He believes this process is essentially a reversal of the "secular stagnation" theme (meaning savings long exceeded investment). Edwards speculates that the recent sharp declines in precious metals and cryptocurrencies may be early signals of tightening financial market liquidity.

From a macro monetary perspective, the rapid growth of broad money supply also harbors inflationary pressures, adding extra uncertainty to the Fed’s policy path.

Economic success depends on AI, debt efficiency shows hidden risks

Edwards’ conclusions align closely with recent analyses from various sources: the current US economy’s consumption and investment are both built on the assumption of an unbroken AI bubble. AI hasn’t just hijacked the stock market—a year-to-date rise in the S&P 500 is entirely contributed by its top ten companies—but has also deeply hijacked the credit cycle of the real economy.

The data also reveals another worry: Although the US has become the driving force behind global credit expansion, it now requires a lot more debt to achieve each unit of GDP growth—the marginal efficiency of credit expansion is declining. This means, once investors begin to question AI’s commercial returns, the entire debt-driven growth logic will face systemic pressure.

Edwards concluded with one sentence: "Watch closely this heavily indebted sector."

Risk warning and disclaimerThe market carries risks; investment must be done cautiously. This article does not constitute individual investment advice, nor does it take into account any user's special investment objectives, financial situation, or needs. Users should consider whether any opinions, perspectives, or conclusions in this article fit their particular circumstances. Investment decisions based on this are at one's own risk. ```