Are data centres going to crash the world economy?

0:02This is a global production. There is a new element that is starting to, frankly, freak markets out. And it is that thing about which we now talk so much and which seems to be determining so much of our lives, including now the markets, and that's AI. We've talked about AI and we've talked about what it might do to jobs. I don't think we talked sufficiently about what it might do to politics because of the effect it's having on local communities. The AI revolution requires an enormous amount of investment. data centers chips power stations cooling systems whole new infrastructure systems that need to be built the background to all of this is something pretty worrying going on in financial markets right now and what people have started to say is hang on a minute the levels of government debt and the level and the cost of government borrowing is not that unadjacent to 2007 2008 and we all know what happened in the financial crash then.

1:14This protest is in Brick Lane in the east end of London. Brick Lane, famed for its bagel shops and Indian restaurants, but could be the site of a data centre and the protest taking place there is something that is being mirrored around the world with huge consequences for the global economy. Data centre politics, protests against new data centres used to power the AI revolution are becoming more and more important in the US and the UK. But might they also lead to something else? The next big global financial crash. Welcome to the News Agents.

2:06It's John, it's Lewis. And the background to all of this is something pretty worrying going on in financial markets right now. And that is that for governments across the industrialised world, including the UK, in the last few days, indeed weeks, borrowing costs have been rising slowly, then sharply. Lots of reasons for that. One is big government deficits. Countries like the UK, US, France, very indebted, still borrowing far more. They're spending far more than they're taking in taxation. There's persistent inflation worries not going down as quickly as many economists believed. High oil prices, the Iran war, continuing to destabilise the global economy and concern in the markets about how sustainable government debt is.

2:53But there is a new element. Those things are quite familiar. There is a new element that is starting to, frankly, freak markets out. And it is that thing about which we now talk so much and which seems to be determining so much of our lives, including now the markets, and that's AI. The AI revolution, something we've talked about on the show before, requires an enormous amount of investment. Data centres, chips, power stations, cooling systems, whole new infrastructure systems that need to be built. it is estimated that up to the end of the decade, the different tech companies, the Silicon Valley firms are going to require some$800 billion of borrowing to fund this revolution and to build this infrastructure.

3:42Companies like Alphabet, Amazon, Meta have already issued$220 billion of debt this year alone in 2026. And that creates something that economists haven't had to think about and governments haven't had to think about for many years. And that is competition for capital. Basically, if you're a pension fund or if you're a big investor and you're thinking about where to put your money, who to lend money to if you're a creditor looking for a debtor, then you've got lots of competition. Typically, you would have given it to governments who are a very reliable source of debt and money from that investment in that debt.

4:24But now you've got all of these tech firms issuing basically government scale level of borrowing. And you might think there's more money to be made from them. So you have a situation now where a government says, look, we want to finance this, so we need to borrow. And you've got pension funds, as you say, and investment funds saying, yeah, we will lend to you, but you have to give us a really handsome rate of interest for us to lend to you rather than to an AI company that's building loads of data centres, which may be far more profitable. And when you talk, Lewis, about the rise of these data centres, if you think about it, look, I suspect most of us listening to this, watching this have got chat GPT, have got Claude, have got kind of other ways of accessing information where we say, is a dog better than a cat?

5:20And every time you interact with AI, it's requiring them to use their data. And to create a data centre takes vast amounts of electricity and the cooling systems take vast amounts of water. And so they are soaking up huge amounts of energy that is very, very expensive and limited. And so you're seeing now people starting to talk about the cost of borrowing for governments having gone up, which makes your debt even worse because you're having to pay far more to service the debt, which is bad for consumers and their mortgages and the like, because if the cost of government borrowing goes up, you can be sure that it is passed on to you if you've got a mortgage, that the cost of your borrowing goes up.

6:14And what people have started to say is, hang on a minute, the levels of government debt and the level and the cost of government borrowing is not that unadjacent to 2007, 2008, and we all know what happened in the financial crash then. And this is exactly what economists are worrying about. To develop your point, John, it's really easy to see how this could cascade out of control. Normally when governments are, or sovereign debt, as it's called, when they're looking to borrow, historically speaking, even in comparison to 2007, 2008, there isn't that much competition. which not many companies, not many industries can really rival the government debt issuance, which comes from many of these countries each and every year.

6:58But these companies have become so big and they've required such levels of investment. And the market has been so scared. Each of them, they're in a sort of Dutch auction at the moment where each of them is terrified of being left behind. So they invest even more and they borrow even more and so on and so forth it goes. So you can imagine if you're, say, like a pension fund thinking about where to put your money, you could lend to say the UK government about 4.8 % or 5 % or whatever it is at the moment for the next 30 years or you can buy a bond from Meta or Alphabet for 7 % where are you going to put your money and as you say suddenly governments have to compete with big tech savings and there's a nasty feedback loop which I identify right John which is that higher government yields basically become the benchmark for all debt in the economy so actually the AI companies themselves have to find themselves having to pay more to finance their debt, to fund their data centres, and so on and so forth it goes.

7:54So you could end up in a kind of economic debt doom loop, which is exactly the sort of thing that when governments are already highly indebted, and this is one of the differences, of course, between 2007 and 2008, back then, in relative terms, government debt was quite low. You know, the UK debt to GDP in 2007 going into that crisis was about 40%. Now it's nigh on 100%. Ditto the United States, ditto France, etc. So the whole of the industrialised world is way more indebted than it was. So if there were to be some sort of bad feedback loop, a kind of cascading effect going through the economy, then we are far less prepared.

8:31Look, there was that great question asked by the late Queen when she went to the London School of Economics and said, well if you're all such brilliant economists how come none of you predicted that the 2008 financial crash was coming and a kind of a number of economists sort of looked at each other and thought it's not a bad question actually we don't know that there will be a crash there were obviously a set of very different circumstances it was about the housing market and these collateralized debt swaps of packages of rotten mortgages that had been sold to a bunch of Americans who were in no position to take on mortgages and that debt was kind of sent whistling around the system and nobody knew how much debt they had taken on that led to that sort of banking collapse and all that followed from that.

9:16But there are alarm bells ringing, it's fair to say. And the other thing about all of this and the data centres, that in America now, you know, we started with the protests in Brick Lane about a data centre. In America, this is a live rail of a political issue now for republicans where there is a huge you know protest against data centers have become a proxy if you like for people's reticence about ai and what it might do to the jobs market and the way that it might eat people's jobs and therefore why are we building more data centers yeah i remember um listening to steve bannon um who obviously is a checkered figure but he was spot on i remember listening to him just after the 2024 presidential election predicting that by the 2028 presidential election, AI job losses, data center politics would become a huge feature of US politics going into that election.

10:08I think he's been proven absolutely correct. We're seeing in the midterms now the number of candidates, particularly in the Democratic Party, on the left of the Democratic Party, who are running on opposing new data centers in their districts or states or whatever it is. And when we talked about the Democratic Socialists of America the other day, that's something that unites them. You know, the left of the Democratic Party putting front and centre of their politics, opposition to data centres. And the scale is striking. In July 2026, so just last month, there were 142 coordinated anti-data centre protests across 42 states.

10:45The first nationwide mobilisation against AI infrastructure build-out. Fredericksburg, Virginia is a centre of this. It's called the Data Centre Valley. And there were protesters, there was a card sign saying, we thrive on water, not data. in Atlanta protesters campaigning under Georgia never voted for hyperscale AI data centers, not the catchiest slogan I've ever heard in politics, but nonetheless, it gets the case across. I mean, you know, and there is loads of polling going on in states like Virginia, where it is becoming a big part of the politics. 35 % of Virginia voters say they're comfortable with new data centers in their community, down from 69 % in 2023.

11:22And it's happening as well in the UK. OK, we started to a lesser extent because we're going much more slowly in this country by comparison to the US. But we saw what happened with Brick Lane there. Campaigners saying that this data centre in Brick Lane in the heart of London is going to cost, is going to take up the equivalent of 15 ,000 homes in terms of their power usage. So you're going to see this as this revolution continues to accelerate, playing out in politics, not just economics across the country. Yeah, just going back to the American example, Axios has got hold of, it was reporting today, a memo written by the National Republican Senatorial Committee.

12:01And they're focusing on the Senate race in Ohio, where Sherrod Brown is the Democrat who's kind of hoping to win in November. And he says that apparently the memo says that Democrats have made data centers a centerpiece of their campaign to defeat the Republican and that it's working. if he loses the republican and data centers get the blame politicians across the country will take notice and they'll not go near the next one the memo says this has become a sleeper issue for the entire election cycle so you know senior republicans are ringing the alarm bells to say oh my god you know and you cannot become the politician that is the face of the data centers because then you are electoral poison and you become toxic yourself.

12:47And so you can see already that something that we've probably spent very little time talking about, we've talked about AI and we've talked about what it might do to jobs. I don't think we talked sufficiently about what it might do to politics because of the effect it's having on local communities. And the other thing to say about these data centres is that they cover a vast area of land, These huge warehouses that house these data centres and the cooling systems, they cover a vast area of land and employ very few people. And so people in these local communities think, well, hang on, what are we getting from this apart from more expensive electricity and a water supply that has got rotten?

13:32And Alexandra Ocasio-Cortez, the Democratic congresswoman from New York, has kind of been on platforms about this and made the point very vividly. I have a jar right here. This is the current drinking water in Morgan County, Georgia. right after a data center was constructed. The metadata center was constructed. The only difference between the clean water and this was that data center. I have another one as well. So this wasn't just one well. This wasn't just one family's situation. This is what the drinking water now looks like next to that data center. and I think both of us can agree that neither one of these things are drinkable.

14:24These families now have to ship in a rural area have to ship water to their house in order to cook and and bathe themselves. Yeah and it should be just if you're if you're listening to this the the bottles the jars of water that she holds up are the most filthy gray brown color that you would not want Just imagine a British river. Yeah. And you've got a good idea of what that might look like. Yeah. I mean, look, yeah. And I think this is another one of those areas where it feels like the politics in Britain is so asleep, so sleepy to the potential transformation that's coming. I mean, we've seen some early glimmers of it.

15:03There was not just in Brit Lane. There's also quite a dramatic example in Larber in Scotland. There's a proposed AI data centre there. it's generated 7 ,000 formal objections and protests from the local community. They're worried about diesel-generated pollution, electricity demand, it's near a hospital, care home. And the police in Scotland have even warned that developers are going to need robust security because it expects continued protests and attempts of disruption there. The SNP are backing a freeze on new data centres because, you know, basically they're concerned that loads more are going to come.

15:37I mean, like, what we're seeing is that AI may live in the cloud, but the politics are intensely physical and it's going to get more and more intense over time. And, you know, in this country, I mean, I really think, again, I mean, we're not... This could be a big part of the politics of the Burnham government or, you know, particularly if it survives quite a long time. Because, you know, this is a country... We're faced with a really difficult dilemma here because, on the one hand, we live in a country where, frankly, the planning system is so arcane. We can't even get 5G, right? We've got a country where, more often than not, even mobile phone masks are it's prevent are prohibited from being built or from expanding and so on which is one of the reasons we've got one of the worst 5g uh what some of the worst 5g coverage anywhere in europe you know you go anywhere in your rural areas rural spain rural norway you're getting 5g almost anywhere half of central london it feels like sometimes you can get barely get data on your phone right that is a product of the planning system and the arcane ridiculous planning system we have where it's very easy to stop these things in most of the of europe a lot of it is presumed consent you could build something that's under a certain level of height in britain that's often not the case so how on earth if we can't even get 5g across most of the country how on earth are we going to compete in a world where the currency is basically data and whereas you say john we need these huge data centers which take up huge amounts of land and resources.

17:00What hope is there almost anywhere in the UK, even in relatively sparsely populated areas, that that will come into contact and survive the current planning regime we have? But if we don't do it, if we don't build it, then we risk in terms of basically being completely left out of the 21st century economy. You know, we will look like a sort of like as if we're still running on steam when the rest of the world had moved to electricity. That's the that's the dilemma that policymakers face and it's very very difficult i see to see the politics on the way through it yes and that's absolutely spot on because you know it's back to the sort of luddites it's back to industrial revolution style protests and spinning jays and all that sort of stuff where people thought well god we've got to stand firm against this technological revolution because it's coming to take our jobs but then we get left behind because we live in a globalized world now and if britain isn't part of it and you can block these data you know well why do we need these data centers because everyone is using ai and you know and therefore it's very hard to just to say well we will have no part of it but i do but i do understand that the companies involved have such poor reputation now and there was such a suspicion as you said john that this is basically about their money their profit yes it's not about jobs it's not about actually doing very much in terms of actually improving the economic conditions of the UK I can understand why people think then why the hell do we want these things you know and because it's something that's kind of happening quite under the radar right up to the point that it's not just as you're saying that Lewis um I've just seen on X that Scott Besson the US Treasury Secretary um is increasing the size of liquidity support buyback operations for longer dated coupons whatever that means but it's it sounds like the US Treasury is getting worried about the cost of borrowing and what it might mean for America's debt, which is about to cross 40 trillion dollars, and that they are kind of involved in some kind of scheme to try and stabilise the cost of borrowing because of their concerns about what this might do to the global economy.

19:09I mean, I would read that basically as being the US Treasury is actually going to buy back a lot of these assets. So a bit of QE effectively to try and stabilise the market. But I think that's very interesting. If you've got the US Treasury Secretary and suggesting they're going to get involved in the market, they must be worried about US Treasuries, i.e. US government bonds, government debts. I mean, they must be worried about it and they must be worried. There has been edging ever up their borrowing costs. And this is the thing. It doesn't even need to be that this AI, the AI element of this and this competition for capital, it doesn't necessarily mean that it is definitely going to lead to a crash.

19:51Just the fact that it is pushing government borrowing costs up for the US, for the UK, for European countries, which, as we say, are already very indebted, that has an effect. It has a significant effect. Let's just take the narrowest, you know, our own politics. Andy Burnham, wanting to come in with lots of new expenditure, wanting to increase money potentially on defence, spending on defence, wanting to increase money on the health service and so on. You know, this is the constraint that Starmer was facing at the same time. All of those, that fiscal headroom that Rachel Reeves left John Healy, her successor, it feels like it is narrowing and diminishing all of the time.

20:35And the other thing is, so people say, oh, it won't cause a crash. It doesn't need to cause a crash to have a really significant effect on our economy. And the other thing is, whenever you talk about AI, people say, oh, it's just, it's just, it's not real. It's sort of a fraud and so on. It's not really going to be there. I think that's just the right way to think about it, right? Like, go back to the 19th century and the early 20th century. Railways were a transformative technology. Many of the firms went bust because there was too much money put into it. It was exactly the same as it is now.

21:08Like, the internet wasn't a fraud, but there was a dot-com bubble crash. Railways weren't a fraud, but there was a massive crash in the 19th century early 20th century in the 70th world. Transformative tech, it can produce some of history's biggest investment rushes. It's still transformative and there can still be a bust around it. And actually, there is a bust because it is transformative. Everyone wants a slice of the pie. Everyone can see... It's piling their money into this particular sector. It's a gold rush and everyone can see where the gold might be. The problem comes because everybody sees it.

21:40Everybody sees it and so everybody rushes to invest and even though it is transformative transformative it can't be transformative enough to sustain the unbelievable amount of money that has been put into it i.e everyone's put their money into it and not everyone can make money from it even if it is a transformative tech and in a moment it's volodymyr zelensky facing a real challenge internally to his position of power

22:15The American Pronunciation Guide Presents «How to Pronounce Ukrainian» ...a safe and realistic mechanism that allows Ukraine to restore a democratic process, even during the long-term war. It's difficult. It's necessary to protect the right of the military, millions of Ukrainians from the border, people from the front regions. We didn't put the music bed on. That was on the video that was released overnight by Mikhail Fedorov. If Emily were here, she'd translate, of course. She would have translated it perfectly. But alas, she's not here. She's making fig jam. And that was Mikhail Fedorov, who used to be the Ukrainian defence minister, who sacking by Zelensky a few weeks back sparked enormous protests in Ukraine because this guy was seen as young, dynamic, had been brilliant in taking the fight to the Russians.

23:11He gets fired because the general chief of staff of the Ukrainian army and he had fallen out. And initially Zelensky chose to get rid of Fedorov. And now Fedorov is saying, you know what? There needs to be change in Ukraine. there need to be elections and of course ukraine at the moment while it's fighting a war with uh russia is under martial law and martial law decrees there cannot be elections when you've got you know millions of soldiers on the front line and how would you get their votes yeah and look um there's a background to all of this right which is that um it's hard for us to see clearly because we think of zelensky as this heroic figure and in many ways in many ways he is of course he perhaps one of the great figures so far of the 21st century but of course every country, even a country in war has domestic politics and he has increasingly found himself mired in these corruption allegations particularly around some of his aides I mean even, you know, he fired one of his top aides only today after our house was raided by anti-corruption authorities there has been basically a litany of kind of graft allegations corruption allegations against his top allies this has been running and running and running and you know this as I say comes after this this blistering blistering attack on Zelensky by the former defence minister who has said actively explicitly identified this corruption as undermining the country's fight against Russia and that seems to me to be the dangerous thing right is that if you are the Zelensky's term was due to end in 2024 obviously it was extended because of the wartime situation, for obvious reasons.

24:57But if you have a popular opponent who is arguing that the corruption of the regime itself is the thing, or at least one of the things, which is undermining the war effort itself, then that seems to me could be pretty dangerous for him. Well, I suppose the thing that it makes you realise is that when you're suddenly having to have huge procurement of goods. And for Ukraine right now, it is of military hardware. Look at COVID in the UK. Exactly what I was going to say. This reminds me of what happened in COVID, where you're suddenly thinking, shit, we've got to get a hold of PPE. We've got to get a hold of gowns.

25:35We've got to get a hold of face masks. We've got to get a hold of all this kit. Where do we get it from? Oh, God knows. Let's try and find it. That is a breeding ground for corruption. Now, look, Ukraine wasn't exactly free of corruption before this. But in the midst of having these billions of dollars worth of contracts to buy in armaments, you've also seen opportunities by some people to cream off a little bit here, to cream off a little bit there. And so the corruption that we saw during Covid is being seen in Ukraine. But of course, it's seen as the most unpatriotic thing possible, that when you've got young Ukrainian men and women on the front line sacrificing their lives to fight the Russian invasion, that there are these people in Kiev who may be making a few million here and a few million there.

26:23Not surprisingly, it sticks in the craw. And Theodorov was seen as the sort of white knight, if you like, who was fighting some of this stuff. And sacked by Zelensky. And sacked by Zelensky. Well, I mean, look, I mean, some of his quotes, corruption in wartime is not merely a financial issue. It's a matter of our capability to survive and win. We must not let Putin decide when Ukrainians can choose their government. Ukrainian democracy must not depend on the goodwill of the Kremlin. So it's a two pronged argument for him. Again, it's dangerous because he is saying basically that if you have in a situation where, of course, it's not just the person we've seen arrested today.

26:58You remember his former chief of staff, Andrei Yermak, charged in May with illicit enrichment and abuse of power. Early August, Ukraine's ambassador to the US resigned and was charged with illegal enrichment only two days later. There have been others as well. They all deny wrongdoing. Of course, what Fedorov is able to say is that we are dependent on the largesse and goodwill of foreign allies to give us aid, to give us money for when the peace eventually comes, for rebuilding, to give us arms. If they believe or come to believe that a decent proportion of it is being siphoned off as graft or as backhanders or in disappearing via corrupt means, then they'll stop.

27:42So it's a potent argument alongside what he's saying, which is that I think there's also a sense in which, and this is what's so depressing and disturbing about the entire thing, Like, you know, this war has already gone on now for longer than the First World War. It won't be long in the grand scheme of things before it goes on for longer than the Second World War. You know, they could be dug in for some time. How long do you stop or defer an election before you feel like you must, before it has to come? Yeah, I think that's a fundamental question. But in the meantime, the effect of this is to boost morale in Moscow, where, you know, the war has become tricky in Russia, where you've suddenly seen these long range drones striking oil terminals and, you know, bits of the Black Sea fleet and hitting ports and hitting the supply lines, the kind of Russian equivalent of Amazon, this company called Wildberries, which has been hit repeatedly.

28:36And so the Ukrainians have been having success on the battlefield. But in Kiev itself, the pressure on Zelensky now is considerable. And it might be a stretch to say, look, he's vulnerable to falling. But I think this is probably the most difficult period he's had as leader. I mean, sure, the most dramatic moment was the bust up with Donald Trump and J.D. Vance in the White House last year. But that was kind of solidified report support in Europe and in Ukraine for him. This sort of stuff is undermining support for him with his internal audience. And that matters. Well, look, I mean, you should remember, of course, that Zelensky still has powerful arguments on sides.

29:22How do you actually conduct a proper election in this situation? You know, it's exactly the same situation as it was at the end of the Second World War in this country. Enormous logistical efforts to actually get the ballot papers from troops all over the world. From the Far East or wherever it happened to be. And it was done, but it was very difficult. And, of course, although the war in Asia was still ongoing, in terms of the war in Europe, at least, it had come to an end. Difficult. There are plenty of examples in other countries, including our own, of non-elections for a longer period than this.

29:54You know, we didn't have an election from 1935 until 1945, the longest period in our democratic history. So, you know, and he still is the most popular figure in Ukraine, by some margin, again, for obvious reasons. But of course, I mean, in some ways, I suppose you could put it the other way around. It is remarkable in the situation that we're in with what the Ukrainians have endured with the speed of news these days, which is not something that Churchill had to deal with. Not only did he have to deal with the speed of news, he controlled the news, you know, it's basically wartime propaganda. Zelensky has not had that.

30:28And so in a way, given how long the war has gone, given there is still no particular sign of it coming to an end, And you could look at it to say it's actually quite remarkable that he's managed to maintain his popularity for as long as he had. And as you say, John, one of the things that has not been covered very much and probably should have been covered more over the last few months is Trump famously turned to the Ukrainians and Zelensky and said, you have no cards. You have no cards. And what did they go and do? They basically showed that they went away and showed him and the White House. They actually had quite a lot of cards and they quietly using drone technology, using very advanced military hardware and so on.

31:01They've been slowly making Russia think twice. they've slowly been making advances. It's not loads and this continues to be a horrendous civilian toll. But we're not at the point that Trump clearly thought we would be 12 months ago, which is Putin being far further west and far further advanced than he has become. You know, Zelensky has been an unbelievably skilled politician and has been, I do think, inspirational since the Russian invasion. When, you know, it starts and he said, I don't want to ride, I want ammunition. I want bullets to fire back and I want to stand. And he has stood firm and he's travelled the world.

31:38And I think he's garnered enormous respect. But the firing of Fyodorov was a mistake. It looks like it just opened up a flank that he should not have exposed when he sort of chose the army chief of staff over his defence minister because the two of them could not work together. In the end, they're both gone. But, you know, it does look like Fyodorov is trying to cause Zelensky some problems now. Well, from one heroic insurgent to another, when we come back, we'll be talking about Zia Yusuf. Stay with us.