r/investing Mar 30, 12:11 PM
A Lalapalooza - The Iran War Will Cause an Economic Collapse in the US First my claim:
Inflation from the Iran war is going to cause a financial crisis an order of magnitude larger than the 2008 housing crash. Inflation will topple private credit, as private equity loan defaults rise at the same time it’s hitting the CRE loan wall. That will create selling pressure that will spill into the stock market and the crypto market, significantly damaging household wealth and freezing up the equity market, while at the same time AI companies need money from the equity markets to make good on the spending commitments that are growing the US economy. Unemployment will hit over 10% and we will see negative GDP growth
How do I know?
Charlie Munger famously spoke of the concept of a lalapalooza. He would say that whenever there is an extraordinary outcome, it is rarely due to only one cause. There is almost always a confluence of factors causing any major event. He gave the examples of the Moonies, a cult, and how they would use a confluence of methods to take a normal everyday person and convert them into a brainwashed fanatic over the course of a weekend.
Right now there is a lalapalooza going on in this country. We are facing a significant threat of inflation, during a time where GDP growth is hinged on a single industry and there is an unknown amount of leverage in the system. This lalapalooza has 5 factors that I know of:
AI - right now the GDP growth of the US is dependent on AI. In Q2 2025, AI was 30% of GDP growth in the US. AI based GDP growth is significantly hampered by increases in construction costs (building data centers), and electricity cost (operating data centers). None of these AI companies are profitable, and they rely on investor money to make these investments. Open AI, Anthropic, and SpaceX (they own xAI) want to go public in the largest planned IPOs in US history, all competing for investment dollars they need to make good on the over $1T of spending commitments they and other AI companies have made.
The federal reserve- the fed is coming off of a number of years with high inflation that is not quite tamed yet. They have already stalled rate cuts and don’t have the ammo to cut rates to stimulate spending, especially if there was an increasing in the inflation rate.
Private credit - Private credit is the lending arm of private equity. They have over $2T of AUM and I couldn’t find a reliable figure for the amount of leverage they use. They have two issues.
The first is commercial real estate. CRE maturities will reach over $1T In 2026 and over $1.2T in 2027. These were loans taken in the low rate environment around the pandemic and will be refinancing at significantly higher rates, while at the same time rents are under pressure in the space as vacancies in office space hold steady at over 14%. Private credit has about $500b invested in CRE loans.
The second problem is private equity. Private equity is the borrower in 70% of private credit deals according to the IMF. These deals are already under p