What is this “bubble of bubbles” burst of the US Stock Markets being predicted? (2024)

Economist Harry Dent has predicted a massive stock market crash in the US next year. He stated that the markets could see some corrections resulting in a crash which will be worse than what the investors saw during the sub-prime crisis in 2008. He further stated that this will not result in an economic recession but will be worse in the form of depression in the economy. He made these comments during an interview given to Fox Business Network. Previously, the economist had been predicting this sort of doomsday scenarios for many years. Presently, after the COVID-19 pandemic, the US has been recovering with a slow and steady GDP growth and an increase in the number of jobs that have been created.

Reasons:

Harry Dent who is an alumnus of the Harvard Business School has said that the stock prices are presently experiencing a sort of “bubble of bubbles” which has been aided by a loose monetary and fiscal policy followed by the US. He stated the market which is presently reflecting inflated value of stocks will tend to correct itself to its correct value.

The market has also been flooded with various stimulus packages since the sub-prime crisis of 2008. The total stimulus amount has been estimated to be $27 trillion.

In economics when a loose monetary and fiscal policy is followed, it leads to increased circulation of money in the economy. This leads to many investments including those in the stock markets and an increased demand for goods and services.

Consequences of the stock market crash:

He estimates that the S&P 500 could lose as much as 86% of its value. This is an index that tracks the performance of top 500 best performing stocks of the US. He added that the Nasdaq Composite could lose as much as 92% of its value. The US Federal Reserve could increase the interest rates to control inflation and this may lead to this crash.

Dent also estimated that this bubble has been building up for the past 14 years which is unusual as most bubbles last for five to six years before bursting.

Challenge for the new US President:

The incoming President of the US may face his first challenge while dealing with the fall out of its economy. If these predictions were to come true, the global economy could also face challenges as it was seen during the 2008 financial crisis.

FAQs:

Will the stock markets in the US crash in 2025?
The prediction by Harry Dent that US stock markets will crash by more than 86% has raised fears in various quarters. The likelihood of this crash at present remains unlikely. However, a lot will depend on the actions of the US Central Bank that determines the monetary policy and the US Treasury Department that determines the fiscal policies.

What is as asset price bubble?
Assets such as stocks, buildings, land, do tend to appreciate when there is a demand for it. A nominal hike in prices is considered to be normal. However, an unusual and inexplicable rise in prices is considered to be an asset price bubble as the bubble can burst when the correcting tendencies set in.

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