The Indicator from Planet Money - How to make $35 trillion ... disappear

Episode Date: December 11, 2025

You may be familiar with the AI-fueled stock market boom. Well, former International Monetary Fund Chief Economist Gita Gopinath warns it could mirror the dot-com boom of the late 1990s. But worse. She calculates a similar crash could erase $35 trillion in global wealth. Today on the show, what would that mean for the US and global economies? Related episodes: This indicator hasn’t flashed this red since the dot-com bubble Open AI’s deals are looking a little frothyFor sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org. Fact-checking by Sierra Juarez. Music by Drop Electric. Find us: TikTok, Instagram, Facebook, Newsletter. See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.NPR Privacy Policy

NPR. The AI boom has had a lot of people comparing this moment to the dot-com crash. That's when the US stock market boomed on the promise of the internet, but then dropped about 50% from its peak. Gita Gubaneth is the IMF's former chief economist and second in charge. She's now at Harvard. And Gita has gamed out what a dot-com-style bust would actually mean for the economy today. We're talking about growth, basically.

coming to a standstill in the US. This is the indicator from Planet Money. I'm Darym Woods. Today on the show, a conversation with Gita Gopaneth about the possible erasure of $35 trillion from the global economy. Economist Gita Gopaneth joined me from her Harvard recording studio late November.

So I think we have all the gadgets we need. Looks like a very serious microphone there. Yes. So today I want to explore how the US stock market could mean trouble for the rest of the world. And to set the scene, can you describe what's been behind the US stock market's pretty big increase over 2025? If you want to understand what's happening in the US stock market, I think it also helps to go back about 10 to 15 years, which is that if you compare the performance of the US stock

market relative to other stock markets around the world, the US has been exceptional. So it was a one-way bet in terms of putting money in U.S. equities. And so that's what happened was not just U.S. households and firms put their money in the stock market, but the rest of the world also basically put a lot of their money in the U.S. stock market. So that's how 2025 started. Now, since then, it's grown by another 14% in terms of the value of the SMP 500. So it's a strong stock market. What's underlying that is the dynamism of US tech. So if you take the Magnificent Seven, which is the seven big tech stocks, that drives about 40% of this increase in valuation that we've been seeing over the last many years.

The Magnificent Seven companies are Microsoft, Meta, Amazon, Apple, Google, Nvidia and Tesla. They're investing heavily in AI. A lot of people's savings are invested. one in the US stock market and therefore ineffectively seven companies. So what's keeping you awake at now? If we look at some numbers, so I'll give you one number, which is looking at the ratio of the price of stocks to the earnings of companies, it's the price to earnings ratio,

this is now at the second highest level in the last 100 years. So the first highest level was just before... 2000. So it was just before the so-called dot-com bust when we had a crash. The valuations are really high and that gives you some pause. Yeah, this is the Cape ratio. We've actually talked a bit about this on the show before. Indeed. Now, that doesn't mean that there's going to be a crash tomorrow or in six months, but it does tell you that the valuations are high. And so if the American stock market is in some kind of bubble and it pops, what's a scenario? that might happen? One useful way to think about this is to compare this to what happened after the

dot-com bust, right? When you had in 2000 a large stock market crash. So over two years, the stock market fell by like 50, 60 percent cumulatively over a two-year period. So if something similar were to happen this time round, given the scale of wealth that's now invested in the U.S. stock market, We're looking at U.S. households losing about $20 trillion in wealth and the rest of the world losing about $15 trillion in wealth. Now, these numbers are much larger than what it was 25 years ago. So if you take that number and then you translate that into what typically happens to consumption, you could see consumption growth dropping by 3.5 percent, which then means U.S. economy as a whole, that growth dropping by 2%.

And just to keep some numbers in mind, the US economy tends to grow around 2%. So just through this channel, we're talking about growth basically coming to a standstill in the US. So you're saying if the stock market were to do what happened in the dot-com bust, the stock market would crash quite a bit and cause households to spend less. And then that would translate into going through. from a growing economy to a stagnant economy. That is correct.

Pretty close to recession, if not in recession. And this is, I'm actually giving you some pretty, you know, conservative numbers. I think the effects could be bigger. And so it's interesting that this is a U.S. problem with huge U.S. effects. What could that look like for other countries? Those who would be hit most are Europeans because they are the ones who are actually exposed to U.S. equities, much more than, say, developing economies or emerging economies or so on and so forth. So there will be spillovers to them too.

But we know this, that when the U.S. goes into a recession, that pushes down growth prospects everywhere because it remains the case that U.S. consumers are a big source of demand for things that people produce elsewhere everywhere in the world. So that's going to slow down economies globally. Even for the U.S., I would say that it's getting increasingly harder to ride out crises. Because when the dot-com crash happened, the U.S. government increased its spending by a lot. And that helped right to the economy, right? It helped stabilize the economy and prevent things from getting worse.

But right now, because U.S. debt is about 120% of GDP, and the rates at which they're borrowing a high, it's not easy to simply go and increase spending. So you've succeeded in scaring me quite a lot. But on the flip side of this argument, could it be premature to raise an alarm over a potential bubble? Is it possible that investors will miss out on huge gains if, for example, AI is as transformative as promised? I think we should all be humble about the fact that it's hard to precisely pinpoint when you may have a correction in the market, right? Ideally, what we would like is there to be some adjustment that happens gradually over time. If it happens slowly, it's okay.

The bigger problem is if there's a big crash. And so I think it's not a bad idea for everybody to pay a little more attention to valuations. of companies to see how much of their portfolio is dependent on these seven stocks and maybe diversify some. And are we seeing other countries starting to reduce their exposure to the U.S. as well? We are certainly seeing that there is more capital now going to other parts of the world. Part of that reason is because there is the sense in which U.S. stock markets are so high in terms of their price, they become very expensive. So in fact, this has been a very good year for emerging and developing countries. You've seen capital go into those markets much more than

they did in 2024. So when you're at dinner parties, how do people react to your scenarios of potential doom? So firstly, I'm not trying to be a doomsayer. I think everybody I talked to agrees with the math. The math adds up. If you have a dot-com crash, it's about 35 trillion. That is indeed correct. There are some people who are more optimistic about how things may play out and they could well be right. I think the big question everybody has to ask is this very large amounts of investments that are happening in AI is not coming along with a clear sense of where the revenues will come from to make up for all these very large amounts of investment. Well, Gita Goperneth, you have left me more worried than when I started, but thank you so much for joining The Indicator.

Thank you, Daryin. The idea is to worry about something so that you can act on it, and then you don't have to worry about it. This episode was produced by Cooper Katz McKin with engineering by Robert Rodriguez. It was fact-jacked by Sierra Juarez. Cake and Canon edits the show and The Indicator is a production of NPR. Hey, it's Daryan Woods here. I just want to take a moment to talk about the vital, role of public media. It was founded to provide news and information to everybody for free,

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