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How Much Wealth an AI Stock Market Crash Could Destroy

economist.com

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Re: How Much Wealth an AI Stock Market Crash Could Destroy

#21

Post by lateforwork »

Counter argument: https://www.nytimes.com/2025/12/09/business/wall-street-valu...

Excerpts:

In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.

While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#22

Post by mitthrowaway2 »

vanschelven wrote: post #15

I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?

Indeed, it just means that the really expensive thing that people put a lot of time into building turned out not to be as valuable as expected. The wealth isn't destroyed, it's being discovered not to exist; a vanishing mirage.

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#24

Post by toomuchtodo »

coredog64 wrote: post #8
toomuchtodo wrote: post #3

Earlier quoted context omitted.

The wealthiest 10% of Americans own 93% of stocks even with market participation at a record high - https://finance.yahoo.com/news/wealthiest-10-americans-own-9... - January 10th, 2024 > The richest Americans own the vast majority of the US stock market, according to Fed data. The top 10% of Americans held 93% of all stocks, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all s…

In 2022, entry into the top decile required a net worth of $1.6M. My gut says folks in the top decile are over-represented here on HN. https://www2.census.gov/library/publications/2024/demo/p70br...

Indeed, the vast majority of Americans have no exposure to equities, or limited exposure through a 401k or a pension. "Be a shame if something happened to these meager rows in a database we've been conning you is the path to financial independence and security. Won't you think of your crumbs?" But I digress. TLDR If the equities market implodes, it'll be mostly fine. The stock market is not the economy [1] [2]. The economy is demand for goods and services.

[1] https://www.google.com/search?q=the+stock+market+is+not+the+...

[2] https://fredblog.stlouisfed.org/2019/08/the-stock-market-is-...

(and I say this as someone with more exposure to the capital markets than most Americans, while hedging against irrationality, voting vs weighing machine and all that)

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#26

Post by anovikov »

toomuchtodo wrote: post #3
skx001 wrote: post #2

https://archive.md/EzGW2 - A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.

The wealthiest 10% of Americans own 93% of stocks even with market participation at a record high - https://finance.yahoo.com/news/wealthiest-10-americans-own-9... - January 10th, 2024 > The richest Americans own the vast majority of the US stock market, according to Fed data. The top 10% of Americans held 93% of all stocks, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all s…

This is a stat that we should take with a huge grain of salt. Poorer people indirectly own stocks through their participation in various pension schemes.

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#27

Post by paulddraper »

vanschelven wrote: post #15

I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?

Yeah. You don't own more or less of anything. Five sticks of gum, a car, 10 shares of $MSFT, a Mewtwo Ultra Rare.

You have exactly same assets as before. The businesses of which you are a fractional owner have the same fundamentals.

But other people won't trade other assets for yours at the same rate.

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#28

Post by willvarfar »

vanschelven wrote: post #15

I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?

Does it materially impact people's pensions?

Globally, pension funds hold approximately $5–7 trillion directly in the top US tech stocks (the "Magnificent Seven" and adjacent AI infrastructure).

Also in the last couple of years many pension funds have moved money into Private Equity and Private Credit to chase higher returns and they're the backstop for all the off-books AI datacenter buildout debt?

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#29

Post by skx001 »

skx001 wrote: post #2

https://archive.md/EzGW2 - A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.

A rule of thumb suggested by one study is that every $100 drop in stock market wealth leads, on average, to a $3.20 drop in consumer spending. Under such an assumption, a dotcom-style crash would cut American consumption by about $890bn, or 2.9% of GDP.

Re: How Much Wealth an AI Stock Market Crash Could Destroy

#30

Post by epsteingpt »

This hurts the 'middle class' the most - as they have their savings locked up in growth stocks like AI.

Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.

But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x

It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.

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