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By Mike Dolan

LONDON, July 1 (Reuters) - In a week of reflection on both a mad first half of 2026 and the 250th anniversary of the U.S., the political and economic news flow has remained relentless, even if it has lately been drowned out by an AI investment frenzy that has shifted this year from the big spenders to the chipmakers supplying the key components.

Today's column takes a different format: a weekly dip into a few other issues — some related and some not — that caught our eye over the past week and didn't necessarily make the front pages.

1) YOUTH BOON OR BURDEN?

America's big anniversary had many investment houses dwelling on just what made the world's biggest economy what it is today.

Drawing on Gordon Wood's 2009 book "Empire of Liberty," which chronicles the early Republic, Morgan Stanley strategist Andrew Sheets argued this week that chaotic, volatile beginnings became an economic catalyst, thanks to the new country's unusual openness, adaptability and capacity for renewal after repeated crises.

One data point stood out: in 1810, about 70% of Americans were under 25. Life expectancy was far lower and the population a fraction of today's, but the figure captures extraordinary youth and vigour — and raises the question of which emerging or frontier economies today have a similar demographic profile.

Sub-Saharan African countries such as Uganda, Niger, Mali, Somalia and Burundi come close, with roughly 70% of their populations under 25 at last count. Even though emigration rather than immigration is the dominant pressure in these countries, and life expectancy is lower than world averages, could sheer youth spell brighter economic futures?

Many economists are sceptical, arguing that today's world is very different from the labour-intensive economies of the early 19th century, and that a youth dividend may not be what it once was.

A Centre for Economic Policy Research paper co-authored by Nobel laureate Daron Acemoglu found that lower birth rates in recent decades have been associated with higher GDP growth per working-age adult across countries and stronger wage growth across U.S. commuting zones — with no negative impact on aggregate GDP or earnings.

The authors argue this reflects a technological and innovative response to scarcer young labour. Countries and regions with lower birth rates, they add, show more labour-saving patents and growing high-tech activity; it is the decline in younger populations, rather than overall population size, that appears to be the driver.

Brave new world indeed — and another hat-tip to the market obsession of the moment.

2) ADVICE ON WHAT?

Much of the focus on new Federal Reserve Chair Kevin Warsh has been on how he will react to market expectations that the next move in Fed interest rates is up. But Warsh himself is likely concentrating on the five "task forces" he set up last month to examine the central bank's workings and the broader conduct of monetary policy.

In that regard, one story that may have passed many people by was a Wall Street Journal piece saying Warsh had tapped veteran Fed staff economists Daniel Covitz and Eric Engstrom as key advisers. Naturally, everyone wants to know what they think and what they've been working on.

Maybe a guidance-skeptic like Warsh was drawn to Engstrom's work on the pitfalls of the Fed's quarterly economic and rate projections. Notably, the pair's most recent joint paper, published in February, dissected elevated Treasury forward rates and concluded that the outsize jump in long-dated rates was rooted more in fiscal concerns than in inflation or worries about Fed credibility.

Curiously, the Fed site says Covitz's current research topics include "Asset Bubbles" and "Stability of Short-term Credit Markets" — timely subjects for a central bank eyeing an AI frenzy in parts of the financial world. Engstrom's listed work on "Stock-Bond Comovement" and "Corporate Profits and Entrepreneurship," meanwhile, speaks to just how much this year's big themes may shape policy thinking.

3) BROKEN CYCLE?

It's easy to get dazzled by the eye-popping gains in the stock prices of the big AI beneficiaries — most obviously this year, chip firms and computing equipment makers. But what looks like a buoyant midyear for top-line stock market indexes masks the angst over AI's potential losers, mainly the software-as-a-service sector.

One way to see that, according to a recent note from Carlyle's Matthew Savino, is in rising borrowing premia for these firms in the leveraged loan market. Software spreads of close to 800 basis points are almost twice the broader index. They jumped nearly 300 bps early in the year and have not come back since.

Two points stick out, according to Savino. First, looming maturity walls mean some $50 billion of syndicated software loans come due in both 2028 and 2029, and these will need to be addressed from the second half of this year through 2027. Some 85% of that debt is rated B-minus or lower, and such debt maturing in 2028-29 has a weighted average price of about 79 cents on the dollar, with more than half trading below 90.

That companies and creditors need to thrash these debts out is clear. But that leads to the second point: most workouts to roll or extend debt involve higher spreads, pay-in-kind coupons or other sweeteners to keep borrowers whole. These generally assume a cyclical recovery over time.

The problem is that, for some firms, AI disruption may be existential, complicating traditionally flexible debt relationships and increasing anxiety for those worst affected.

"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," Savino concluded. "It's about to get interesting."

(The opinions expressed here are those of Mike Dolan, a columnist for Reuters.)

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