Legendary short seller Jim Chanos has built a career sniffing out bubbles, hype, and outright fraud. In this conversation with the Institute for New Economic Thinking, he connects the speculative mania of today’s AI- and crypto-driven markets to past booms, from the dotcom era to 17th-century London. He explains why he sees meme coins and Bitcoin treasury companies as symptoms of a casino-like financial culture, why AI is juicing earnings now but could crash them later, and why stablecoin might pose both economic and national security risks.
Chanos also muses on our overconfidence in tech, making a case for rediscovering the value of critical thinking and historical perspective. As he sees it, technology changes fast, but human nature – not so much.
Lynn Parramore: You’ve always been alert to financial fads and the risks they pose. One area getting increasing attention is stablecoin. From an investor’s perspective, how you compare stablecoin to traditional bank deposits or money market funds in terms of safety and risk? Is stablecoin actually stable?
Jim Chanos: Theoretically, the problem becomes trusted parties. That’s exactly what the whole digital currency thing is trying to get around. And that’s the paradox —there’s a lot of paradoxes at work in the whole crypto space.
So the question is, who is the trusted party? The reason we have bank deposits is that for most people, they’re very comfortable knowing at least their money’s safe no matter what happens. There’s federal insurance backing it. But as some crypto holders learned the hard way a few years ago, if your crypto gets stolen or turns out to be fraudulent, there’s usually no safety net.
Stablecoin little bit different because by definition – it’s supposedly backed by real money, one to one. But all it’s going to take is for us to find out that one of the stablecoins wasn’t backed — maybe we find out the audits were flawed, whatever the case might be. Then you’re going to have the equivalent of bank runs for the 1930s. People could rush to pull their money out.
Another paradox for me is how the government is sort of embracing it, and sort of not embracing it. If you’re a student of history, you know that one of the few advantages of being the global hegemon is your ability to borrow in your own currency, and crypto could threaten that.
You have lots of extra costs being the global hegemon, like running deficits, but one of the few advantages is that you control the global reserve currency. Whether it was Spain in the 16th century, Britain in the 19th century, or the U.S. since World War II, that role gives a country a lot of financial flexibility, like influencing the global banking system, placing sanctions on bad actors if need be, and having pretty much unfettered access to capital markets globally. The idea that the United States would willingly give that up to embrace a Bitcoin or crypto set of protocols, to me is simply insane. There might be a place in portfolios for these digital currencies, but I think the jury is out on that.
But to basically try to replicate the system we’ve built up since Bretton Woods on the back of this, to allow a global currency as opposed to the US dollar, I think makes no sense from not only an economic point of view, but from a national security point of view for the United States.
LP: How seriously do you take talk in Europe of the Trump administration possibly being interested in pushing stablecoin to sustain international use of the dollar?
JC: The only thing I take seriously with the Trump administration as it relates to crypto is that they’re going to try to make some money off of it themselves. I really don’t see a coherent policy set of policy alternatives coming out of this that are consistent. And again, it just makes no sense to promote any of these things over the US dollar.
LP: What do you think about meme coins? They mostly seem like a joke — with silly names like “fartcoin” and so on. But there are also more serious projects, like Coldware, which claim to offer real value by combining coins, wallets, apps, and using decentralized governance. Do you see any actual value in these kinds of projects, or is it just more hype?
JC: It’s all examples of a speculative era, right? I mean, I get Bitcoin, I get the protocol. But all of this access and trying to legitimize meme coins takes me back to the NFTs in 2020 and 2021, when people were paying six figures for digital apes. These are all just speculative vehicles for people to gamble on, and it’s really important to understand that if prices were going down or not going up, none of this stuff would exist.
People can easily trade stocks, bet on sports, and do all sorts of risky things right from their smartphones, from the security and safety of their basement, bedroom, whatever. It’s become a bit of a casino society. I think that meme coins are just another manifestation. Another one that we’ve been harping about recently is the Bitcoin treasuries.
LP: Let’s talk about that. You’ve been vocal about the “financial gibberish” going on with companies that base their business models on accumulating Bitcoin.
JC: You’re basically speculating on companies buying Bitcoin and hoping that they will keep a premium because investors are buying their stocks at a premium. I mean, it’s just all kind of ridiculous when you boil it down to its essence.
LP: So if people stop paying that premium, the stock price could crash, even though the company still owns a bunch of Bitcoin.
JC: Exactly.
LP: Is there any emerging crypto sector that you think deserves cautious optimism?
JC: Well, these are these are financial assets, so I’m always loathe to say I know what the price that any specific financial asset should be. I get the argument for Bitcoin because it’s been accepted. I will caution everybody, however, that is the sole reason that Bitcoin has been accepted by financial society is because of belief in the protocol and the acceptance of the hard cap of 21 million coins.
LP: In other words it’s based in trust that the supply is limited.
JC: Right. And as I keep pointing out, Bitcoin is a human construct, right? It’s not some law of physics or something of limited supply in the ground like oil or gold.
It’s literally something where someone did a construct that was accepted by the community because of certain security protocols built into the system. But there’s no reason to think that Bitcoin can’t be replicated if the value is there to replicate it. Bitcoin currently has almost a two and a half trillion dollar implied value, which is starting to get, as we say, statistically significant.
So there’s going to be an awful lot of incentives for very bright software engineers and people to replicate Bitcoin’s model on a hard cap. They might say, “We’re only going to have 10 million Parramorecoins” or whatever, and then people to start speculating in those.
LP: Now there’s an idea!
JC: Basically, if people can make money by replicating something humans made up, they will. And that’s what we’re seeing in these Bitcoin treasury companies. There’s now a hundred of them because they’re easy to replicate.
Bitcoin will not be so easy to replicate, but I can assure you, as we’re speaking right now, someone is working on a limited coin set of protocols to try to capture some of that value.
LP: So the technology advances, but greed stays pretty much the same.
JC: Fear and greed have been pretty cyclical throughout technological advancement.
LP: For a long time, you’ve been calling our current era the Golden Age of Fraud. Still think that?
JC: Yes — except now we might be moving on to the Diamond or Platinum level.
LP: Yikes. I want to ask about something else happening related to the issue of trust – and that’s data. You’ve been skeptical for a long time about economic data from places like China. Now, even in the U.S., trust in official economic data is fading. Is this a sign that the financial system is starting to drift away from reality?
JC: Well, a couple of years ago, Dear Leader Xi in the People’s Republic basically revamped the amount of economic reporting that was going on — an attempt to sort of bury the stuff they didn’t like and whitewash a lot. I would note that the Dear Leader currently in the U.S. is now starting to pressure the BLS [Bureau of Labor Statistics], and just the other day that he was telling the CEO of Goldman Sachs to fire their economist — he said he didn’t like his viewpoint.
So, this is kind of a farce at this point. It’s basically shoot-the-messenger if you don’t like the data. We’ll see where it goes. I think that a lot of this is like a lot of things coming out of the Trump administration. It’s whatever the narrative of the day is, and then it kind of recedes with everybody’s forgetting about it. Remember Doge?
LP: Good point. Are investors finding other ways to get reliable data?
JC: There’s a fire hose of data out there now, and alternative data that’s probably getting just as accurate, or close to being as accurate, as the government data. We trade off the government data, but not as much as we used to.
And I think it’ll be hard to ignore a true recession once it comes by just saying it doesn’t exist. Revising the numbers and so on. But it’s not to say that they might not try!
LP: Let’s talk about AI. Are there any sectors where you see A.I. as having revolutionary impact or do you tend to think that some of the headlines are overblown?
JC: I have no idea where AI is going to go and take us. It’s getting better by the by the month, by the week, by the year. We’ll just have to see. I’m as curious as anyone – will it replace certain jobs? Will it bring forth new jobs? Will it render industries obsolete?
The Internet was an amazing development — it basically took things that were analog and digitized them and enabled you to transfer them at almost no cost and store them at no cost. It brought forth all kinds of new businesses. It also destroyed lots of old businesses: any business that had an analog product that became digital was in trouble, like Eastman Kodak or whatever.
I suspect we’re going to see the same thing with AI and we’ll just have to see how that plays out.
I keep pointing out, though, that one of the more interesting takeaways from the dotcom era and the networking boom — when we all started communicating with each other — is to look at U.S. real GDP in the 10 years before Netscape, from 1987 to 1997. It was almost exactly the same as U.S. real GDP in the 10 years after Netscape, from 1997 to 2007. And that’s not even counting the global financial crisis.
So there was no increase in economic growth. Productivity increased somewhat, but total economic growth didn’t rise much, partly because population growth was lower. Overall, the boom that you would have expected to see in the world’s most advanced economy was not noticeable because of the Internet. And it hasn’t been since. It’ll be interesting to see if AI changes that.
What these things do—and they certainly did with fracking, but more ominously with the telecom and dotcom era—is drive capital spending and earnings for a very interesting reason. It’s not just that animal spirits are stirred; there’s also an accounting angle that everyone forgets. When you get a major capex boom focused on physical tech assets, like the fiber and Internet buildout in the late ’90s, it significantly boosts reported earnings, even if the underlying returns aren’t there.
What we’re seeing now with AI chips is similar to what happened during the telecom boom. The big tech companies — the so-called Mag 7 — are buying chips as fast as they can. The companies selling the chips book that spending as revenue and profit, just like Lucent and Nortel did back then. But the companies doing the spending — like MCI or AT&T in the past — are the ones taking on the cost. They capitalize those expenses and spread the write-off over several years. So, a chip that might become obsolete in just two years is being depreciated by some of the big hyperscalers over five, six, or even seven years. That creates a huge boost to corporate earnings during tech buildout booms like the one we’re seeing now.
That’s number one. Number two, the spending — and thus the earnings — can collapse. Everyone kind of remembers the global financial crisis, but they kind of forget that from 2000 to 2002, corporate earnings dropped 40 percent. The same as the global financial crisis. Because capex spending stopped in 2001, and literally there was no lag time. Earnings just completely collapsed when the spending did.
I’m starting to worry there’s so much spending right now on the AI physical boom — the buildout of data centers, chips, and so on — that if anyone decides to pause and ask, “What’s our real economic return here?” it could be a big problem. It’s one thing when we’re spending $50 billion a year; it’s another when that changes. As a group, we’re spending $500 billion a year, and if there’s no real return, can we really spend a trillion dollars a year on this without seeing results? It’ll be interesting to watch. Right now, spending is growing faster than operating income or revenues.
So we’re getting to the point now where within a year or two, some of these large companies are going to start having to make some very uncomfortable decisions as to when and how they will monetize AI, and what the returns will ultimately be on this massive spending, because the chips basically depreciate over two years.
LP: Do you see fraud picking up with the current AI-driven market boom? And what about the use of AI technology to create more sophisticated scams in general?
JC: I haven’t spent a lot of time on the technical side of AI-driven fraud—like deepfakes and similar tools—but it’s pretty clear it’s going to get worse. Again, the paradox is, do we start relying on trusted third parties to arbitrate some of this stuff, or do we leave it to the free market?
When it comes to financial fraud specifically, there’s no question we’re seeing more of it — especially riding the wave of the current AI-driven market boom. You and I go way back, and you’ll remember it’s one of my long-held views that the fraud cycle always follows the financial cycle with a lag. And we’re definitely seeing that now. I think we’ll see even more of it, as companies do everything they can to hype themselves to unsuspecting investors by claiming they’re AI companies or touting some big technology breakthrough that sounds exciting but doesn’t happen to be true.
There’s no doubt that this financial cycle has likely surpassed the dotcom era in terms of enthusiasm, valuations, and capital markets activity. So now, we just have to see how it plays out.
LP: You said something recently about how the heavy push toward STEM education has produced a lot of unemployed programmers. Have we perhaps overvalued tech and undervalued, say, the humanities and other forms of learning? Is it time to go short on STEM and long on the humanities — investing more in thinking about things like moral reasoning, citizenship, and a cohesive society?
JC: I’m never going to go short on education, but it just goes to show you how hard it is to predict the future. A handful of years ago, the accepted wisdom was, look, forget the humanities, go study computer programming. Don’t learn French, learn COBOL [an old programming language] or whatever the case might be.
Ironically, tech itself is pushing back — the technology is now rendering some of that advice a little questionable. With AI starting to write its own code, even programming may not be as future-proof as we thought.
So, I don’t think it ever hurts to remember that the most important part of education is learning critical thinking—whether in the humanities, sciences, or anywhere else. Ultimately, humans have a pretty good ability to adapt. Learning skills like logic and composition will never go out of style, and having some understanding of the history of the human condition doesn’t hurt either. We don’t change all that much over the centuries, over eons, maybe, but we’re still a pretty predictable bunch of apes.
Understanding how human beings have acted in the past in similar circumstances is a benefit, I think, to not only business people and investors, but to society as a whole. My students are always shocked when I bring my friend Jamie Catherwood in for a guest lecture in class about the broadsheets in the late 17th century, talking about people manipulating stocks in the first IPO bubble in London. It wasn’t a whole lot different from today, you know, having Twitter feeds promoting companies and so on. Just the technology is a lot better.
