No. of Recommendations: 29
On the subject of the possibility of markets behaving badly, this is a thoughtful article, written by the former chief economist, and former deputy managing director, of the IMF.
Probably paywalled.
"Gita Gopinath on the crash that could torch $35trn of wealth"
https://www.economist.com/by-invitation/2025/10/15...A couple of snips:
"At the heart of this concern is the sheer scale of exposure, both domestic and international, to American equities.
...
To put the potential impact in perspective, I calculate that a market correction of the same magnitude as the dotcom crash could wipe out over $20trn in wealth for American households, equivalent to roughly 70% of American GDP in 2024. This is several times larger than the losses incurred during the crash of the early 2000s. The implications for consumption would be grave. Consumption growth is already weaker than it was preceding the dotcom crash. A shock of this magnitude could cut it by 3.5 percentage points, translating into a two-percentage-point hit to overall GDP growth, even before accounting for declines in investment.
The global fallout would be similarly severe. Foreign investors could face wealth losses exceeding $15trn, or about 20% of the rest of the world’s GDP. For comparison, the dotcom crash resulted in foreign losses of around $2trn, roughly $4trn in today’s money and less than 10% of the rest of the world’s GDP at the time. This stark increase in spillovers underscores how vulnerable global demand is to shocks originating in America.
...
In sum, a market crash today is unlikely to result in the brief and relatively benign economic downturn that followed the dotcom bust. There is a lot more wealth on the line now—and much less policy space to soften the blow of a correction. The structural vulnerabilities and macroeconomic context are more perilous. We should prepare for more severe global consequences."
Jim
