Treasury Has an Internal Report Warning About the Dangers of an AI Bubble

Author: Eric Katz, NOTUS (the URL now redirects to The Washington Sun) URL: https://www.notus.org/economy/treasury-internal-report-warning-dangers-ai-bubble Published: July 6, 2026 One-line: While the Trump administration talks up AI in public, career Treasury analysts drafted a report comparing today’s AI boom to the dotcom bubble and mapping how a downturn would spread through the financial system.

Summary

The scoop. NOTUS obtained a draft Treasury report, not previously reported, prepared for Treasury Secretary Scott Bessent, Fed Chair Kevin Warsh and federal financial regulators. It had been finished for weeks and was awaiting sign-off, with eventual public release expected.

What the analysts found:

• Deeper entrenchment than the dotcoms. AI firms are more woven into the U.S. economy than their late-1990s predecessors, so a miss on financial conditions, productivity or supply would hit the whole system.
• A slower burn, not a crash. A pop would likely be less abrupt than 2000–2001, but companies would cut back, investor confidence would erode and growth would slow. Stocks, private credit, data-center financiers, cloud providers, chipmakers and utilities would all feel it.
• Stronger balance sheets, real caveats. Today’s leaders are more mature and profitable than the debt-fueled dotcoms, which could soften the blow, if a bubble bursts at all. But much of the financial system now rests on AI hitting its productivity and profit targets.
• Named vulnerabilities. Concentration in a few firms, heavy reliance on private-market financing, and huge sunk spending on data centers. Choke points include supply chains, geopolitics, electricity and utilities.
• Institutional exposure. Fewer retail investors are in AI than were in the dotcoms, so a sustained dip would land harder on institutions that are central to financial stability. The big firms are also interconnected with each other.

The contrast. Publicly, Bessent praised Big Tech’s $750 billion AI buildout in a June 25 New York speech and asked whether the country could at least match the dotcom era’s productivity gains. He has called falling behind China the biggest AI risk. A Treasury spokesperson dismissed the draft as unvetted and not representative of department views. Sen. Elizabeth Warren and other Senate Democrats had pressed for exactly this kind of analysis and proposed disclosure legislation on AI debt exposure.

Full text

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Connections

• Scott Bessent — Treasury Secretary; his public optimism is the foil for the internal report.
• What Happens If OpenAI Dies — Ed Zitron’s contemporaneous case for the downside scenario this report models.
• OpenAI and Anthropic — the concentrated, privately financed firms at the center of the exposure.
• Artificial Intelligence — the capex cycle in question.