July 1, 2026, (Inside AI) — The relentless AI investment frenzy has shifted from big spenders to chipmakers, but beneath the surface, a quiet reckoning is brewing for software firms drowning in debt. As the U.S. marks its 250th anniversary, economists are questioning whether a youth boom still drives growth in an AI-dominated world, and new Federal Reserve task forces are scrutinizing asset bubbles.
These undercurrents surfaced in a week of reflection on a volatile first half of 2026, where political and economic noise was drowned out by chip stock surges. Yet, for all the market euphoria, structural tremors are emerging.
Does a 70% Youth Population Still Fuel Economic Miracles?
Drawing on Gordon Wood’s 2009 book “Empire of Liberty,” Morgan Stanley strategist Andrew Sheets noted that in 1810, about 70% of Americans were under 25. That extraordinary youth and vigor catalyzed the early Republic’s economic rise. Today, several sub-Saharan African nations—Uganda, Niger, Mali, Somalia, and Burundi—have similar demographics.
But can sheer youth still spell brighter futures? Many economists are skeptical. A Centre for Economic Policy Research paper co-authored by Nobel laureate Daron Acemoglu found that lower birth rates in recent decades correlate with higher GDP growth per working-age adult and stronger wage growth, with no negative impact on aggregate GDP. The authors argue this reflects a technological response to scarcer young labor: countries with lower birth rates show more labor-saving patents and high-tech activity.
“It is the decline in younger populations, rather than overall population size, that appears to be the driver,” the paper suggests. In an AI age, a youth dividend may not be what it once was.
Fed Task Forces Eye AI Frenzy and Fiscal Fears
New Federal Reserve Chair Kevin Warsh has set up five task forces to examine the central bank’s workings. A Wall Street Journal report revealed he tapped veteran Fed economists Daniel Covitz and Eric Engstrom as key advisers. Their research hints at policy concerns.
Engstrom and Covitz’s February paper dissected elevated Treasury forward rates, concluding the outsize jump in long-dated rates was rooted more in fiscal concerns than inflation or Fed credibility worries. Meanwhile, the Fed site lists Covitz’s current research topics as “Asset Bubbles” and “Stability of Short-term Credit Markets”—timely for a central bank eyeing an AI frenzy. Engstrom’s work on “Stock-Bond Comovement” and “Corporate Profits and Entrepreneurship” speaks to how this year’s big themes may shape policy thinking.
For a guidance-skeptic like Warsh, Engstrom’s past work on the pitfalls of the Fed’s quarterly projections may prove influential.
The software-as-a-service sector is flashing distress signals. According to Carlyle’s Matthew Savino, borrowing premia for these firms in the leveraged loan market have surged. Software spreads near 800 basis points are almost twice the broader index, jumping nearly 300 bps early in the year and not retreating.
Looming maturity walls mean some $50 billion of syndicated software loans come due in both 2028 and 2029. About 85% of that debt is rated B-minus or lower, with a weighted average price of about 79 cents on the dollar. More than half trades below 90.
Traditional workouts assume a cyclical recovery, but for some firms, AI disruption may be existential. As Savino concluded:
“In the context of secular distress and high uncertainty about terminal value, time can be the enemy if the pace of financial degradation in the underlying business is high. It’s about to get interesting.”
The opinions expressed are those of Mike Dolan, a columnist for Reuters.
