Here’s another thing AI is making worse: the cost of borrowing money
The AI craze is not only threatening to wipe out jobs and inflate a sharemarket bubble. It’s also costing governments more when they borrow.
But when you add the competition of the AI-fuelled debt surge into that quest for funds, the cost of borrowing money goes up.
Donaldson estimates the AI story probably adds about 50 basis points to the yield on a 10-year Australian government bond, meaning the government is paying more to borrow money. He says that would imply roughly an extra $3 billion in annual interest costs for the federal budget for this year.
Some investors wonder if the global contest for money will also drive up costs or Australian banks, which also rely on overseas markets for a significant chunk of their funding. Commentary from the big four as they deliver results over the next fortnight may shed light on this.
Does this mean the AI craze is pushing up the cost of your mortgage?
It’s not quite that simple. Higher bond yields drive up fixed-rate mortgages, but the jury is still out on what the AI craze means for the variable rates set by central banks such as the RBA.