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How Much Wealth an AI Stock Market Crash Could Destroy

43 points by skx001 10mo ago

skx001 10mo ago
https://archive.md/EzGW2 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.
- anticorporate 10mo ago
  "Household wealth" is such a sneaky little phrase from the Economist to make it sounds like we're all equally exposed to this risk.
- toomuchtodo 10mo ago
  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-93-033623827.html 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 stocks in the third quarter of 2023. (the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
  - coredog64 10mo ago
    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-202.pdf https://www2.census.gov/library/publications/2024/demo/p70br...
    - toomuchtodo 10mo ago
      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+economy https://www.google.com/search?q=the+stock+market+is+not+the+... [2] https://fredblog.stlouisfed.org/2019/08/the-stock-market-is-not-the-economy/ 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)
  - IAmBroom 10mo ago
    Which is not to say it wouldn't have repercussions downhill from the gilded palaces, but - yeah, mostly wealth of the wealthy would be harmed. Unfortunately, any market dip means jobs lost, at least temporarily. I personally stay all-market, and long-term, so if anything it would be a buy opportunity for me.
  - bachmeier 10mo ago
    You have to use caution when interpreting those numbers. The bottom 50% doesn't have much wealth, so a big chunk of their wealth will decrease. It also tends to be unevenly distributed, so for those trying to improve their situation (think someone 60 years old with $50K in retirement savings), it would hit really hard. Plus a lot of those people would lose their jobs when the highest 10% cut back on spending.
    - hapless 10mo ago
      If you have $50k in retirement savings at age 60, you are already broke Turning it into $40k or $70k is unlikely to impact your life outcomes
      - franktankbank 10mo ago
        So you're saying I'm invincible!
      - bachmeier 10mo ago
        That doesn't reflect the reality of life for those in the bottom half of the wealth distribution, and especially for those in the bottom quarter. $30K is a lot of money to them. The 30th percentile of income in the US in 2023 was under $30K. They're hoping to grow their $50K to $100K or $150K before retiring at 70.
  - skx001 10mo ago
    - The above totals do not include indirect holdings-such as investments via pension funds and life-insurance companies-of which American households have some $20T.
  - anovikov 10mo ago
    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.
  - kiba 10mo ago
    Land prices are subject to speculative bubbles as well. The only way to get rid of speculation in the real estate market is to drive the price of land down to zero by taxing it. You also need a lot of money to purchase land, so this effectively allows banks to make a lot of money on overly inflated price of land. Land by itself doesn't generate wealth, only improvements on top of it does. Only problem is that we tax improvement along with the land, leading to the perverse incentive that building anything increases your tax burden. We call them property tax.
    - toomuchtodo 10mo ago
      We're getting into the weeds, but the goal is usually to own your home free and clear by the time you retire, reducing your income needs from retirement to death by not having a non discretionary housing payment. The wealth in most homes cannot be tapped until sold, death, or stripping the equity (HELOC or reverse mortgage) and hoping you die with zero. You can sort of think of a house as an I bond you can live in [1], and the return is the equity gains (historically). You need lots of money to buy land because demand outstrips supply, there is a shortage of ~4M housing units in the US, and the pipeline for building new housing was permanently impaired after the 2008 global financial crisis. We will never build as fast as we used to as we go into structural demographic labor shortages in the US; the value of existing real estate is ancient embodied construction productivity and material costs, similar to how oil is ancient sunlight. [1] The Rate of Return on Everything, 1870–2015 - https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf | https://doi.org/10.24148/wp2017-25 https://doi.org/10.24148/wp2017-25
      - kiba 10mo ago
        Drive down the price of land to zero via taxation and you cannot use that home to reduce your income need from retirement. It will force them to sell the property to make way for further development, since the cost of land is no longer so high that you need to borrow money from the bank to purchase land, only to pay the ongoing taxes.
        10mo ago
  - czbond 10mo ago
    > (the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate) But this is not solely on the top 10% to be maligned. We should force everyone to save.... even $5-10/month adds up for the least privileged over time. We force everyone to immediately pay taxes because the money would not be there year end - we should do the same for saving because it is easier than changing human behaviour. A lack of education at most societal levels to: be taught the impacts of forgoing now for later, think long term, act long term, resist impulse to spend on consumer or ego level goods for societal "approval" or mating. Home are the primary source of wealth for families because it is forced payment. It is what a good parent would do - and every person needs a "parent" for some aspect of our lives (we're all bad at something).
    - toomuchtodo 10mo ago
      60% of Americans cannot meet their basic needs on their income. They simply do not have enough income and cashflow to get exposure to the capital markets. No amount of education fixes a system structured to extract. We took pensions away saying they were unaffordable (they weren't, those contributions just go to shareholders now), took wages away through globalization and more corporate power, and then blame the human as if this was their fault. "Have you tried eating less avocado toast?" More people crowdfunded for basic needs like food and housing in 2025, GoFundMe reports - https://www.pbs.org/newshour/nation/more-people-crowdfunded-for-basic-needs-like-food-and-housing-in-2025-gofundme-reports https://www.pbs.org/newshour/nation/more-people-crowdfunded-... - December 9th, 2025 Most [bottom 60% of U.S. households] Americans don't earn enough to afford basic costs of living, analysis finds - https://news.ycombinator.com/item?id=44119317 https://news.ycombinator.com/item?id=44119317 - May 2025
      - czbond 10mo ago
        Wholly agree...
      - koakuma-chan 10mo ago
        But what is it that they can't afford? They don't have a job? Rent is too expensive?
- koakuma-chan 10mo ago
  What does "wipe out" mean? Money doesn't disappear when someone sells.
  - IAmBroom 10mo ago
    First, wealth and money are not the same. If you live in a mansion, but your bank account is zero, you can be wealthy and money-poor at the same time. Money isn't some fixed object, like the amount of bills in circulation. It's the gross valuation of all sales, whether you trade a dollar bill or swipe a debit card or take out a small loan with a credit card tap. And money can disappear, if something valued at $10 only sells for $9.
  - luka598 10mo ago
    Not sure, but one example I can think of is gov bailout, if the gov just prints the money and the asset becomes worthless.
    - IAmBroom 10mo ago
      Government printing bills has literally nothing to do with the amount of wealth in the world. They don't use those physical objects to pay government debts, nor do they dole them out to stranger or "friends". The government can generate money in the short term by changing lending rates ("the Prime"), which allows you to buy more for less interest, which encourages purchases. The long-term effect includes paying off that interest, of course, and someone still has to want to loan money at that rate; if the Prime went to zero your credit card rates still wouldn't be zero.
- skx001 10mo ago
  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.
barbazoo 10mo ago
Im sure the wealthy find a way to socialize these “losses”. Also what a shit headline. There’s no wealth destroyed, it’s all just numbers go up and down. But until you sell you haven’t lost any money, have you?
- smallmancontrov 10mo ago
  But truly, is not red in the brokerage accounts of the wealthy the greatest social ill of our time?
- JKCalhoun 10mo ago
  Maybe a distinction without a difference. If my "numbers go down" it follows that so does my spending, investing, etc.
  - barbazoo 10mo ago
    You're right. I guess it depends on many variables. If you're income depends on dividends and gradually selling offs of your portfolio, I can see now how that would affect my behavior. Same with being someone close to retirement but then, financial planning should have pulled out high volatile stocks from a portfolio that needs to get converted to cash shortly. If you're a normal person, planning on buying and holding broad market ETFs for the next 20 years, we're just gonna ride it out, right? Right?
- IAmBroom 10mo ago
  Without buying and selling, there is no change in price. Obviously, wealth will therefore be destroyed - just not that of buy-and-hold people. I have no sympathy for the uber-wealthy, but claiming no one's wealth will be affected is ridiculous.
  - barbazoo 10mo ago
    The way I think about it is that it'll affect those most that are the most greedy, those that are exposed to the most risky "products". If your wealth is in bonds or something else boring, won't this be a non event? I'm not convinced it's not someone in the background choosing wrong (greed) that's the problem.
sanex 10mo ago
I'm hopeful that the AI bubble popping would bring back money flowing to other industries. If you're not an AI company right now it takes a lot to get investor cash flowing in.
- IAmBroom 10mo ago
  This is real. I have a buddy who has been an entrepeneur all his life. He renamed his first company to Name-Dot-Com just before the Dot-Com Crash; a short jump in investment followed by a period where he couldn't get his calls returned, and he was forced to sell. So my point is: "angel investors" in startups seem to be a really "ADHD", shiny-distraction-oriented bunch. And that has a huge impact for smaller companies.
blitzar 10mo ago
It would be like SVB all over again. Small governemnt, anti bailout, pull yourselves up by your bootstraps tech CEOs on TV crying and begging for someone to cover their losses.
- jghn 10mo ago
  Same as it always was. Privatize gains, Socialize losses.
- brentm 10mo ago
  I don't think that is likely this time. Injecting capital to cover losses doesn't bring back the forward looking valuations so stock prices would remain down anyway. Gov isn't going to fund losses for like Microsoft.
  - blitzar 10mo ago
    Airline CEOs, Auto CEOs, Bank CEOs have all done it in the not distant past. Eventually, you have to fly the private jet to Washington and sit at a comittee and beg. Tech CEOs are not as special as they think they are, one day they too will be there begging, like a dog.
  - alecco 10mo ago
    The top 10% will not be left holding the bag. They will get a bailout by the taxpayer in some form or another, like quantitative easing (Fed purchasing) or some national security plan spending trillions. Note almost all members of US Congress, both parties, invests in these stocks heavily.
    - seanmcdirmid 10mo ago
      Anyone holding a popular index fund are also invested in these stocks. Thats basically their entire 401K.
- moribvndvs 10mo ago
  Too Big to Fail 2.0
jcims 10mo ago
Are there any tools to take your existing porfolio and play out scenarios like this? Eg positions in 100+ stocks aggregated from 401k, Roth, 529, etc and see best guesses as to how I'm exposed?
- Mistletoe 10mo ago
  Portfoliovisualizer.com but I’ll save you some time it won’t be pretty. Just make a truly diverse portfolio and never worry. Lots of efficient portfolios explored here. https://portfoliocharts.com/2021/12/16/three-secret-ingredients-of-the-most-efficient-portfolios/ https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
  - jcims 10mo ago
    Thanks!
Jeremy1026 10mo ago
I like the correction, specifically how it ends with "sorry."
vanschelven 10mo ago
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?
- mitthrowaway2 10mo ago
  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.
  - ethbr1 10mo ago
    The relevant question is 'What is a custom Meta AI datacenter valuable for, after a hypothetical AI crash?' Crypto -> LLM -> Repurpose Crypto Power Contracts to Feed LLM Datacenters -> AI crash -> Repurpose LLM Hardware/Power for Crypto ? Would be curious if anyone has run the numbers on what LLM hardware capacity (including upcoming) would do to blockchains, if a big chunk were reallocated.
- lokar 10mo ago
  For my financial planning, I discount my stock portfolio by 20%
- paulddraper 10mo ago
  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.
  - z0r 10mo ago
    Don't the invested dollars poured into infrastructure that won't yield gains represent a loss of value? Especially if the same investment could have been put to work somewhere more fruitful.
random9749832 10mo ago
I'm just waiting for the next massive knee jerk reaction in the stock market to start seriously investing again. AI is not going anywhere even if there is a bubble but people are going to make stupid narratives on it being over for Nvidia and tech.
- etrautmann 10mo ago
  Time in the market >> timing the market. You’re statistically not better off waiting although ai understand the feeling.
jeffbee 10mo ago
None. The prices are estimates of value not the value itself.
- IAmBroom 10mo ago
  Value is not wealth.
lateforwork 10mo ago
Counter argument: https://www.nytimes.com/2025/12/09/business/wall-street-valuation-ai-bubble.html 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.
- mitthrowaway2 10mo ago
  But the circular financing throws those earnings into doubt. There's no question that Nvidia makes fantastic products, but right now a lot of its customers are buying those products using borrowed money, or money invested in them by Nvidia itself. Its highly questionable whether those earnings are sustainable.
- lokar 10mo ago
  In the case of nvidia, the price is based on expectations of future revenue, not current. And the future numbers are clouded by a web of opaque circular deals with customers.
- scottlamb 10mo ago
  Nvidia is selling shovels, widely believed to be a better business than panning for gold. So... * You can't generalize from Nvidia to companies spending all the money on hardware, electricity, and labor without making a profit. * It's also worth asking if Nvidia will keep having those earnings if all the AI companies crash. Unsure about this. At least there's a bunch of pent-up demand from people wanting GPUs for other reasons. * Also, there's the $100B they invested in OpenAI...
- pipo234 10mo ago
  That is how it seems, yes. But Nvidia also has some less than transparent arrangements to support their customers in buying their goodies. Which is not to say they aren't making money, it's more that in hindsight we may discover that the p/e ratios were not the primary measure we should have paid attention to...
KumaBear 10mo ago
Why does it matter? Government learned during covid they can spend there way out of a crash.
- IAmBroom 10mo ago
  Stay in school. When the history prof gets to the Great Depression, pay attention.
  - tharmas 10mo ago
    Private debt caused the Great Depression.
    - IAmBroom 10mo ago
      Yes, but we're discussing solutions, not causes. The government spent money to pull the country out of it.
- Hasz 10mo ago
  ...and in 2008. sadly, it might actually work: https://bipartisanpolicy.org/article/the-deficit-in-a-downturn-how-have-recessions-impacted-the-federal-budget/ https://bipartisanpolicy.org/article/the-deficit-in-a-downtu... https://www.frbsf.org/research-and-insights/publications/economic-letter/2021/02/can-government-spending-help-to-escape-recessions/ https://www.frbsf.org/research-and-insights/publications/eco... The hard part is reigning that spending in during non-crash years (see the uproar over removing the temporary COVID subsidies) in a way that is not political suicide. At the Federal level, there is zero incentive to not run a deficit.
- 79a6ed87 10mo ago
  But since then the other countries learned that the US government could weaponize their USD holdings if they don't align. Central banks started accumulating gold to counter this. Also, debt market is not the same as it was 5 years ago, Japan now has inflation (and they hold the biggest bag of US debt). To add to this, USD lost 10% of its value this 2025 according to the DXY index. To be fair, it pretty much went to what it was worth before 2022, but the Fed has to be careful anyway. Many things happened since 2020. It's almost 2026.
epsteingpt 10mo ago
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.
elzbardico 10mo ago
The rich will be deemed too big to fail somehow and will be bailed out somehow. We will leave the bill for some teacher pension fund in Minnesota.
corry 10mo ago
Some of this analysis seems a bit lazy for the Economist. Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush. Nvidia, OK that one is obvious. Meta, Alphabet, OK. But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company. Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
- IAmBroom 10mo ago
  Maybe. It's hard to say for sure. Tesla for example: its stock price has fluctuated down 50%, then up 100% (relative to the dip), in this year alone. Clearly, that's market speculation, not capital + earnings. So how much of that speculation is AI-dependent? Depends on how much coffee investors drink before reading Musk's latest tweets, I guess. Apple is HEAVILY invested in AI, but you're right: it's earnings are dependent more on iPads than AI right now. > ...are you really deciding whether or not to buy based on their AI-ness? Buy APL stock, or buy an iPhone?
cramsession 10mo ago
Tesla is currently sitting near a $1.5T valuation with $1.47 earnings per share based entirely on AI vaporware. The adjustment to reality cannot come soon enough.
- smallmancontrov 10mo ago
  Vaporware like this? https://youtu.be/3DWz1TD-VZg?t=111 https://youtu.be/3DWz1TD-VZg?t=111
  - cramsession 10mo ago
    Yes, fulfilling regulatory requirements are part of shipping a product.
- cr125rider 10mo ago
  Full self driving next year! Full self driving next year! Full self driving next year! Full self driving next year! Full self driving next year!
deleted 10mo ago
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7777777phil 10mo ago
I think the real issue comes down to how these companies are being valued. As the article points out, "the top 20 firms account for 52%, with the same number deeply invested in AI." This concentration makes the market more vulnerable to any major setback in AI's growth. But the question remains: Are these valuations justified? As I mentioned in earlier writing [1][2], many AI stocks are priced assuming the tech will deliver far more immediate and consistent returns than history suggests. These speculative assumptions are similar to the dotcom era, where companies like Yahoo and Pets.com were valued based on hype/expectation rather than fundamentals. If AI doesn't live up to the hype, the consequences could be even worse today imo, given how much more of American wealth is tied up in stocks. Edit: Just read a related WSJ [3] article. [1] https://pdub.click/2511242 https://pdub.click/2511242 [2] https://pdub.click/251210e https://pdub.click/251210e [3] https://www.wsj.com/personal-finance/the-everyday-investors-hedging-against-an-ai-bubble-538e92f3 https://www.wsj.com/personal-finance/the-everyday-investors-...
lateforwork 10mo ago
As long as potential feels bigger than reality, investors keep pouring in. Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential. By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
deleted 10mo ago
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poisonborz 10mo ago
Stock market crash? I believe less and less a 1929 style crash is possible. Tesla, Uber, hell, look at GameStop still... The market is rigged. The US and the upper class needs numbers go up, the numbers will go up. The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
- jghn 10mo ago
  > The US and the upper class needs numbers go up, the numbers will go up. You don't think anyone had ever tried that prior to past crashes?
  - array_key_first 10mo ago
    Maybe they were just bad at it and didn't get enough buy-in.
    - seanmcdirmid 10mo ago
      The economy will recover quickly until it doesn’t. We haven’t had a depression in almost 100 years, we might be due one.
- ndsipa_pomu 10mo ago
  That doesn't seem plausible to me, though not because I don't think the upper class would be above such behaviour. If investors try to prop up the price of a company, they'll end up buying more over-priced shares and potentially losing far more money in the long-term, so it's probably only worthwhile if they believe that it's just a short-term blip. Also, the investors that don't believe that it's a sensible long-term bet will be offloading their shares to the people who are willing to pay top price for them, so someone is going to end up holding a lot of expensive stock that's not performing.
jstummbillig 10mo ago
I find the relationship of the general public with company ownership fascinating. 1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life. 2) Kinda hate on people who run those companies 3) Also kinda hate on big companies in general 4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.
hnthrowaway0328 10mo ago
Just electronic signals, not true wealth.

43 points by skx001 10mo ago

skx001 10mo ago

https://archive.md/EzGW2 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.

anticorporate 10mo ago
"Household wealth" is such a sneaky little phrase from the Economist to make it sounds like we're all equally exposed to this risk.
toomuchtodo 10mo ago
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-93-033623827.html 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 stocks in the third quarter of 2023. (the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
- coredog64 10mo ago
  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-202.pdf https://www2.census.gov/library/publications/2024/demo/p70br...
  - toomuchtodo 10mo ago
    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+economy https://www.google.com/search?q=the+stock+market+is+not+the+... [2] https://fredblog.stlouisfed.org/2019/08/the-stock-market-is-not-the-economy/ 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)
- IAmBroom 10mo ago
  Which is not to say it wouldn't have repercussions downhill from the gilded palaces, but - yeah, mostly wealth of the wealthy would be harmed. Unfortunately, any market dip means jobs lost, at least temporarily. I personally stay all-market, and long-term, so if anything it would be a buy opportunity for me.
- bachmeier 10mo ago
  You have to use caution when interpreting those numbers. The bottom 50% doesn't have much wealth, so a big chunk of their wealth will decrease. It also tends to be unevenly distributed, so for those trying to improve their situation (think someone 60 years old with $50K in retirement savings), it would hit really hard. Plus a lot of those people would lose their jobs when the highest 10% cut back on spending.
  - hapless 10mo ago
    If you have $50k in retirement savings at age 60, you are already broke Turning it into $40k or $70k is unlikely to impact your life outcomes
    - franktankbank 10mo ago
      So you're saying I'm invincible!
    - bachmeier 10mo ago
      That doesn't reflect the reality of life for those in the bottom half of the wealth distribution, and especially for those in the bottom quarter. $30K is a lot of money to them. The 30th percentile of income in the US in 2023 was under $30K. They're hoping to grow their $50K to $100K or $150K before retiring at 70.
- skx001 10mo ago
  - The above totals do not include indirect holdings-such as investments via pension funds and life-insurance companies-of which American households have some $20T.
- anovikov 10mo ago
  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.
- kiba 10mo ago
  Land prices are subject to speculative bubbles as well. The only way to get rid of speculation in the real estate market is to drive the price of land down to zero by taxing it. You also need a lot of money to purchase land, so this effectively allows banks to make a lot of money on overly inflated price of land. Land by itself doesn't generate wealth, only improvements on top of it does. Only problem is that we tax improvement along with the land, leading to the perverse incentive that building anything increases your tax burden. We call them property tax.
  - toomuchtodo 10mo ago
    We're getting into the weeds, but the goal is usually to own your home free and clear by the time you retire, reducing your income needs from retirement to death by not having a non discretionary housing payment. The wealth in most homes cannot be tapped until sold, death, or stripping the equity (HELOC or reverse mortgage) and hoping you die with zero. You can sort of think of a house as an I bond you can live in [1], and the return is the equity gains (historically). You need lots of money to buy land because demand outstrips supply, there is a shortage of ~4M housing units in the US, and the pipeline for building new housing was permanently impaired after the 2008 global financial crisis. We will never build as fast as we used to as we go into structural demographic labor shortages in the US; the value of existing real estate is ancient embodied construction productivity and material costs, similar to how oil is ancient sunlight. [1] The Rate of Return on Everything, 1870–2015 - https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf | https://doi.org/10.24148/wp2017-25 https://doi.org/10.24148/wp2017-25
    - kiba 10mo ago
      Drive down the price of land to zero via taxation and you cannot use that home to reduce your income need from retirement. It will force them to sell the property to make way for further development, since the cost of land is no longer so high that you need to borrow money from the bank to purchase land, only to pay the ongoing taxes.
      - 10mo ago
- czbond 10mo ago
  > (the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate) But this is not solely on the top 10% to be maligned. We should force everyone to save.... even $5-10/month adds up for the least privileged over time. We force everyone to immediately pay taxes because the money would not be there year end - we should do the same for saving because it is easier than changing human behaviour. A lack of education at most societal levels to: be taught the impacts of forgoing now for later, think long term, act long term, resist impulse to spend on consumer or ego level goods for societal "approval" or mating. Home are the primary source of wealth for families because it is forced payment. It is what a good parent would do - and every person needs a "parent" for some aspect of our lives (we're all bad at something).
  - toomuchtodo 10mo ago
    60% of Americans cannot meet their basic needs on their income. They simply do not have enough income and cashflow to get exposure to the capital markets. No amount of education fixes a system structured to extract. We took pensions away saying they were unaffordable (they weren't, those contributions just go to shareholders now), took wages away through globalization and more corporate power, and then blame the human as if this was their fault. "Have you tried eating less avocado toast?" More people crowdfunded for basic needs like food and housing in 2025, GoFundMe reports - https://www.pbs.org/newshour/nation/more-people-crowdfunded-for-basic-needs-like-food-and-housing-in-2025-gofundme-reports https://www.pbs.org/newshour/nation/more-people-crowdfunded-... - December 9th, 2025 Most [bottom 60% of U.S. households] Americans don't earn enough to afford basic costs of living, analysis finds - https://news.ycombinator.com/item?id=44119317 https://news.ycombinator.com/item?id=44119317 - May 2025
    - czbond 10mo ago
      Wholly agree...
    - koakuma-chan 10mo ago
      But what is it that they can't afford? They don't have a job? Rent is too expensive?
koakuma-chan 10mo ago
What does "wipe out" mean? Money doesn't disappear when someone sells.
- IAmBroom 10mo ago
  First, wealth and money are not the same. If you live in a mansion, but your bank account is zero, you can be wealthy and money-poor at the same time. Money isn't some fixed object, like the amount of bills in circulation. It's the gross valuation of all sales, whether you trade a dollar bill or swipe a debit card or take out a small loan with a credit card tap. And money can disappear, if something valued at $10 only sells for $9.
- luka598 10mo ago
  Not sure, but one example I can think of is gov bailout, if the gov just prints the money and the asset becomes worthless.
  - IAmBroom 10mo ago
    Government printing bills has literally nothing to do with the amount of wealth in the world. They don't use those physical objects to pay government debts, nor do they dole them out to stranger or "friends". The government can generate money in the short term by changing lending rates ("the Prime"), which allows you to buy more for less interest, which encourages purchases. The long-term effect includes paying off that interest, of course, and someone still has to want to loan money at that rate; if the Prime went to zero your credit card rates still wouldn't be zero.
skx001 10mo ago
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.

barbazoo 10mo ago

Im sure the wealthy find a way to socialize these “losses”. Also what a shit headline. There’s no wealth destroyed, it’s all just numbers go up and down. But until you sell you haven’t lost any money, have you?

smallmancontrov 10mo ago
But truly, is not red in the brokerage accounts of the wealthy the greatest social ill of our time?
JKCalhoun 10mo ago
Maybe a distinction without a difference. If my "numbers go down" it follows that so does my spending, investing, etc.
- barbazoo 10mo ago
  You're right. I guess it depends on many variables. If you're income depends on dividends and gradually selling offs of your portfolio, I can see now how that would affect my behavior. Same with being someone close to retirement but then, financial planning should have pulled out high volatile stocks from a portfolio that needs to get converted to cash shortly. If you're a normal person, planning on buying and holding broad market ETFs for the next 20 years, we're just gonna ride it out, right? Right?
IAmBroom 10mo ago
Without buying and selling, there is no change in price. Obviously, wealth will therefore be destroyed - just not that of buy-and-hold people. I have no sympathy for the uber-wealthy, but claiming no one's wealth will be affected is ridiculous.
- barbazoo 10mo ago
  The way I think about it is that it'll affect those most that are the most greedy, those that are exposed to the most risky "products". If your wealth is in bonds or something else boring, won't this be a non event? I'm not convinced it's not someone in the background choosing wrong (greed) that's the problem.

sanex 10mo ago

I'm hopeful that the AI bubble popping would bring back money flowing to other industries. If you're not an AI company right now it takes a lot to get investor cash flowing in.

IAmBroom 10mo ago
This is real. I have a buddy who has been an entrepeneur all his life. He renamed his first company to Name-Dot-Com just before the Dot-Com Crash; a short jump in investment followed by a period where he couldn't get his calls returned, and he was forced to sell. So my point is: "angel investors" in startups seem to be a really "ADHD", shiny-distraction-oriented bunch. And that has a huge impact for smaller companies.

blitzar 10mo ago

It would be like SVB all over again. Small governemnt, anti bailout, pull yourselves up by your bootstraps tech CEOs on TV crying and begging for someone to cover their losses.

jghn 10mo ago
Same as it always was. Privatize gains, Socialize losses.
brentm 10mo ago
I don't think that is likely this time. Injecting capital to cover losses doesn't bring back the forward looking valuations so stock prices would remain down anyway. Gov isn't going to fund losses for like Microsoft.
- blitzar 10mo ago
  Airline CEOs, Auto CEOs, Bank CEOs have all done it in the not distant past. Eventually, you have to fly the private jet to Washington and sit at a comittee and beg. Tech CEOs are not as special as they think they are, one day they too will be there begging, like a dog.
- alecco 10mo ago
  The top 10% will not be left holding the bag. They will get a bailout by the taxpayer in some form or another, like quantitative easing (Fed purchasing) or some national security plan spending trillions. Note almost all members of US Congress, both parties, invests in these stocks heavily.
  - seanmcdirmid 10mo ago
    Anyone holding a popular index fund are also invested in these stocks. Thats basically their entire 401K.
moribvndvs 10mo ago
Too Big to Fail 2.0

jcims 10mo ago

Are there any tools to take your existing porfolio and play out scenarios like this? Eg positions in 100+ stocks aggregated from 401k, Roth, 529, etc and see best guesses as to how I'm exposed?

Mistletoe 10mo ago
Portfoliovisualizer.com but I’ll save you some time it won’t be pretty. Just make a truly diverse portfolio and never worry. Lots of efficient portfolios explored here. https://portfoliocharts.com/2021/12/16/three-secret-ingredients-of-the-most-efficient-portfolios/ https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
- jcims 10mo ago
  Thanks!

Jeremy1026 10mo ago

I like the correction, specifically how it ends with "sorry."

vanschelven 10mo ago

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?

mitthrowaway2 10mo ago
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.
- ethbr1 10mo ago
  The relevant question is 'What is a custom Meta AI datacenter valuable for, after a hypothetical AI crash?' Crypto -> LLM -> Repurpose Crypto Power Contracts to Feed LLM Datacenters -> AI crash -> Repurpose LLM Hardware/Power for Crypto ? Would be curious if anyone has run the numbers on what LLM hardware capacity (including upcoming) would do to blockchains, if a big chunk were reallocated.
lokar 10mo ago
For my financial planning, I discount my stock portfolio by 20%
paulddraper 10mo ago
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.
- z0r 10mo ago
  Don't the invested dollars poured into infrastructure that won't yield gains represent a loss of value? Especially if the same investment could have been put to work somewhere more fruitful.

random9749832 10mo ago

I'm just waiting for the next massive knee jerk reaction in the stock market to start seriously investing again. AI is not going anywhere even if there is a bubble but people are going to make stupid narratives on it being over for Nvidia and tech.

etrautmann 10mo ago
Time in the market >> timing the market. You’re statistically not better off waiting although ai understand the feeling.

jeffbee 10mo ago

None. The prices are estimates of value not the value itself.

IAmBroom 10mo ago
Value is not wealth.

lateforwork 10mo ago

Counter argument: https://www.nytimes.com/2025/12/09/business/wall-street-valuation-ai-bubble.html 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.

mitthrowaway2 10mo ago
But the circular financing throws those earnings into doubt. There's no question that Nvidia makes fantastic products, but right now a lot of its customers are buying those products using borrowed money, or money invested in them by Nvidia itself. Its highly questionable whether those earnings are sustainable.
lokar 10mo ago
In the case of nvidia, the price is based on expectations of future revenue, not current. And the future numbers are clouded by a web of opaque circular deals with customers.
scottlamb 10mo ago
Nvidia is selling shovels, widely believed to be a better business than panning for gold. So... * You can't generalize from Nvidia to companies spending all the money on hardware, electricity, and labor without making a profit. * It's also worth asking if Nvidia will keep having those earnings if all the AI companies crash. Unsure about this. At least there's a bunch of pent-up demand from people wanting GPUs for other reasons. * Also, there's the $100B they invested in OpenAI...
pipo234 10mo ago
That is how it seems, yes. But Nvidia also has some less than transparent arrangements to support their customers in buying their goodies. Which is not to say they aren't making money, it's more that in hindsight we may discover that the p/e ratios were not the primary measure we should have paid attention to...

KumaBear 10mo ago

Why does it matter? Government learned during covid they can spend there way out of a crash.

IAmBroom 10mo ago
Stay in school. When the history prof gets to the Great Depression, pay attention.
- tharmas 10mo ago
  Private debt caused the Great Depression.
  - IAmBroom 10mo ago
    Yes, but we're discussing solutions, not causes. The government spent money to pull the country out of it.
Hasz 10mo ago
...and in 2008. sadly, it might actually work: https://bipartisanpolicy.org/article/the-deficit-in-a-downturn-how-have-recessions-impacted-the-federal-budget/ https://bipartisanpolicy.org/article/the-deficit-in-a-downtu... https://www.frbsf.org/research-and-insights/publications/economic-letter/2021/02/can-government-spending-help-to-escape-recessions/ https://www.frbsf.org/research-and-insights/publications/eco... The hard part is reigning that spending in during non-crash years (see the uproar over removing the temporary COVID subsidies) in a way that is not political suicide. At the Federal level, there is zero incentive to not run a deficit.
79a6ed87 10mo ago
But since then the other countries learned that the US government could weaponize their USD holdings if they don't align. Central banks started accumulating gold to counter this. Also, debt market is not the same as it was 5 years ago, Japan now has inflation (and they hold the biggest bag of US debt). To add to this, USD lost 10% of its value this 2025 according to the DXY index. To be fair, it pretty much went to what it was worth before 2022, but the Fed has to be careful anyway. Many things happened since 2020. It's almost 2026.

epsteingpt 10mo ago

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.

elzbardico 10mo ago

The rich will be deemed too big to fail somehow and will be bailed out somehow. We will leave the bill for some teacher pension fund in Minnesota.

corry 10mo ago

Some of this analysis seems a bit lazy for the Economist. Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush. Nvidia, OK that one is obvious. Meta, Alphabet, OK. But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company. Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?

IAmBroom 10mo ago
Maybe. It's hard to say for sure. Tesla for example: its stock price has fluctuated down 50%, then up 100% (relative to the dip), in this year alone. Clearly, that's market speculation, not capital + earnings. So how much of that speculation is AI-dependent? Depends on how much coffee investors drink before reading Musk's latest tweets, I guess. Apple is HEAVILY invested in AI, but you're right: it's earnings are dependent more on iPads than AI right now. > ...are you really deciding whether or not to buy based on their AI-ness? Buy APL stock, or buy an iPhone?

cramsession 10mo ago

Tesla is currently sitting near a $1.5T valuation with $1.47 earnings per share based entirely on AI vaporware. The adjustment to reality cannot come soon enough.

smallmancontrov 10mo ago
Vaporware like this? https://youtu.be/3DWz1TD-VZg?t=111 https://youtu.be/3DWz1TD-VZg?t=111
- cramsession 10mo ago
  Yes, fulfilling regulatory requirements are part of shipping a product.
cr125rider 10mo ago
Full self driving next year! Full self driving next year! Full self driving next year! Full self driving next year! Full self driving next year!

deleted 10mo ago

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7777777phil 10mo ago

I think the real issue comes down to how these companies are being valued. As the article points out, "the top 20 firms account for 52%, with the same number deeply invested in AI." This concentration makes the market more vulnerable to any major setback in AI's growth. But the question remains: Are these valuations justified? As I mentioned in earlier writing [1][2], many AI stocks are priced assuming the tech will deliver far more immediate and consistent returns than history suggests. These speculative assumptions are similar to the dotcom era, where companies like Yahoo and Pets.com were valued based on hype/expectation rather than fundamentals. If AI doesn't live up to the hype, the consequences could be even worse today imo, given how much more of American wealth is tied up in stocks. Edit: Just read a related WSJ [3] article. [1] https://pdub.click/2511242 https://pdub.click/2511242 [2] https://pdub.click/251210e https://pdub.click/251210e [3] https://www.wsj.com/personal-finance/the-everyday-investors-hedging-against-an-ai-bubble-538e92f3 https://www.wsj.com/personal-finance/the-everyday-investors-...

lateforwork 10mo ago

As long as potential feels bigger than reality, investors keep pouring in. Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential. By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.

deleted 10mo ago

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poisonborz 10mo ago

Stock market crash? I believe less and less a 1929 style crash is possible. Tesla, Uber, hell, look at GameStop still... The market is rigged. The US and the upper class needs numbers go up, the numbers will go up. The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.

jghn 10mo ago
> The US and the upper class needs numbers go up, the numbers will go up. You don't think anyone had ever tried that prior to past crashes?
- array_key_first 10mo ago
  Maybe they were just bad at it and didn't get enough buy-in.
  - seanmcdirmid 10mo ago
    The economy will recover quickly until it doesn’t. We haven’t had a depression in almost 100 years, we might be due one.
ndsipa_pomu 10mo ago
That doesn't seem plausible to me, though not because I don't think the upper class would be above such behaviour. If investors try to prop up the price of a company, they'll end up buying more over-priced shares and potentially losing far more money in the long-term, so it's probably only worthwhile if they believe that it's just a short-term blip. Also, the investors that don't believe that it's a sensible long-term bet will be offloading their shares to the people who are willing to pay top price for them, so someone is going to end up holding a lot of expensive stock that's not performing.

jstummbillig 10mo ago

I find the relationship of the general public with company ownership fascinating. 1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life. 2) Kinda hate on people who run those companies 3) Also kinda hate on big companies in general 4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.

hnthrowaway0328 10mo ago

Just electronic signals, not true wealth.