The Federal Reserve has lost control. Soaring national debt and its interest payments—the second-largest budget item—force policy decisions. This "fiscal dominance" is pushing the U.S. towards an inevitable sovereign debt crisis within a decade.

The AI industry and the US government both require trillions in funding. This creates a paradox: the more successful AI becomes, the more it erodes the white-collar tax base by automating jobs, forcing the Treasury to borrow even more and intensifying the competition for scarce capital.

The timeline for a US fiscal crisis has collapsed. What was once seen as a 20- or 40-year issue is now, according to Jeff Gundlach, a "five-year problem." Plausible scenarios show interest expense consuming over half of all tax receipts by 2030, making it an urgent, real-time issue.

Despite recent concerns about private credit quality, the most rapid and substantial growth in debt since the GFC has occurred in the government sector. This makes the government bond market, not private credit, the most likely source of a future systemic crisis, especially in a rising rate environment.

Policymakers confront an 'evidence dilemma': act early on potential AI harms with incomplete data, risking ineffective policy, or wait for conclusive evidence, leaving society vulnerable. This tension highlights the difficulty of governing rapidly advancing technology where impacts lag behind capabilities.

The most immediate systemic risk from AI may not be mass unemployment but an unsustainable financial market bubble. Sky-high valuations of AI-related companies pose a more significant short-term threat to economic stability than the still-developing impact of AI on the job market.

The political hope is that AI-driven productivity will solve the national debt. The overlooked danger is that AI's first casualties will be highly-paid, indebted professionals (bankers, lawyers), whose mass defaults could crash the financial system before any 'age of abundance' arrives.

The debate over national debt is a distraction from the more pressing issue: AI will soon make many high-paying professional jobs obsolete. The urgent conversation should be about reforming society to share the resulting abundance, not fighting yesterday's financial battles.

Tyler Cowen predicts the US will eventually resort to several years of ~7% inflation to manage its national debt. This strategy, while damaging to living standards, is politically more palatable than raising taxes or cutting spending. Rapid, AI-driven productivity growth is the only plausible alternative to this outcome.