Former IMF Chief Economist Warns About the Next $35 Trillion Financial Crash

Gita Gopinath, former IMF Chief Economist, warns about the sudden rise of the U.S. stock market and the surge of an unavoidable correction, which could have catastrophic effects on the global economy. She estimates that losses could amount to over $35 trillion.

Former IMF Chief Gopinath: Next Financial Crash Could Wipe $35T From Global Economies

The Facts:

Gita Gopinath, former Chief Economist and Deputy Managing Director of the International Monetary Fund (IMF), has warned about the effects of a correction in the U.S. stock market, estimating it would have dire consequences for the world’s economy.

In a recent article, Gopinath states that the recent growth of the stock market, propped up by the emergence of new and innovative technologies as artificial intelligence (AI), is due for a pullback.

“There are good reasons to worry that the current rally may be setting the stage for another painful market correction,” she stressed, estimating that such an event would cause an international crash due to the interconnectedness of global markets and the reach of these investments in large economies, particularly in Europe.

Comparing the predicted crash with the early 2000s dotcom burst, Gopinath estimates that the U.S. local economy would shed $20 trillion (3.5%) while international investors would be hit with $15 trillion in losses, almost 20% of the rest of the world’s gross domestic product (GDP).

“A market crash today is unlikely to result in the brief and relatively benign economic downturn that followed the dotcom bust. The structural vulnerabilities and macroeconomic context are more perilous. We should prepare for more severe global consequences,” she concluded.

Why It Is Relevant:

Gopinath is just one of the many voices that have shown concerns about the predominance of AI as a growth pillar, which could be masking a slowdown in the traditional U.S. economy.

JPMorgan estimates that companies with high exposure to AI account for 44% of the S&P 500’s total valuation, up from 22% in 2022. This has enabled American households to gain nearly $5 trillion in wealth over the last few years.

This means that a crash would not only affect Wall Street but also Main Street equally, as investments in equity markets are now very popular due to their recent gains. An AI market drop would precede an economic recession in the U.S. that would affect not only investors directly but also the industries part of the supply chain for AI, including energy and semiconductors.

Looking Forward:

While there is no certainty in the occurrence of an upcoming AI-linked market crash, experts agree that maintaining a diversified portfolio and avoiding overvalued stocks could help investors manage a hypothetical downturn. Allocating a portion of these investments into safe-haven assets like gold, which has been on a tear recently, could also help in the case of a heavy correction.

FAQ 🧭

• What has Gita Gopinath warned regarding the U.S. stock market?
  Gopinath cautioned that a correction in the U.S. stock market could have severe consequences for the global economy, potentially causing an international crash.
• What factors does Gopinath attribute to the current stock market growth?
  She believes the growth has been fueled by advancements in technologies like artificial intelligence (AI), which may now be due for a pullback.
• What financial losses does Gopinath predict from a potential market crash?
  Gopinath estimates that the U.S. economy could lose $20 trillion, while international investors may face $15 trillion in losses, heavily impacting global GDP.
• What strategies do experts suggest for investors in light of potential risks?
  Some recommend maintaining a diversified portfolio and considering safe-haven assets like gold to mitigate possible losses during a market downturn.