Gita Gopinath on the crash that could torch $35trn of wealth

The Gathering Storm: Why a U.S. Market Correction Could Trigger a $35 Trillion Global Shock – And What Leaders Must Do Now

As 2025 closes with markets at euphoric highs—fueled by AI optimism and shadowed by trade tensions—a stark warning from one of the world’s sharpest economic minds demands attention.
Gita Gopinath, former IMF Chief Economist and now Harvard professor, recently wrote in The Economist: “The crash that could torch $35 trillion of wealth.” Her thesis? Global finance is dangerously tethered to U.S. equities. A sharp correction—think dot-com bust on steroids—could wipe out $20 trillion in U.S. household wealth (70% of GDP) and another $15 trillion globally. The ripple effects? Far deeper than anything we saw two decades ago.

Why This Time Is Different—and More Dangerous
1. Global Overexposure at Record Levels
Over 15 years, U.S. stocks became the world’s default growth engine. Foreign holdings—especially from Europe—are at historic highs, amplified by dollar strength. A U.S. downturn now reverberates everywhere.
2. AI Mania Mirrors Dot-Com Fever
Innovation is real, but valuations are bloating. Technology, adoption and monetisation voltilities are real and  unknown in magnitude. Margin debt is peaking. Mega-cap concentration—the “Magnificent Seven”—makes the system brittle. One shock could trigger forced liquidations.
3. Fragile Policy Backdrop
Trade wars, fiscal fatigue, and eroding trust in institutions limit governments’ ability to cushion a crash. A weaker dollar signals hedging against U.S. risk, not confidence.

The Pivot: From Alarm to Action
This isn’t inevitable doom—it’s a wake-up call for radical diversification and structural reinvention. Leaders who act now can turn fragility into opportunity.

What CxOs and Investors Must Do Immediately
• De-Americanize Portfolios
Global benchmarks are 30–40% non-U.S., yet many portfolios remain U.S.-heavy. Tilt toward international equities, emerging markets, and resilient factors like quality and value.
• Build Multipolar Growth Engines
Europe, Asia, and emerging economies must double down on innovation ecosystems. India’s 7–8% growth push—via labor reforms and skilling—is a blueprint.
• Reinvent Risk Management; THIS IS CRITICAL! 

Use AI for resilience, not hype: predictive economics, supply chain fortification, and scenario modeling. Policymakers must safeguard central bank independence and trade stability.
•U.S. dominance has been a boon—but over-reliance is a systemic risk akin to pre-2008 housing concentration. A controlled correction now, via prudent rebalancing, beats a catastrophic burn later.

Bottom Line
The storm clouds are real. But so are the opportunities for those who act boldly. 

Risk Management That Thinks Like AI: ‘Anticipate, Adapt, and Outperform.’

Reform. Innovate. Or risk  $35 trillion go up in flames.