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In just seven days, $1 trillion vanished from the value of seven of the big U.S. growth stocks. One trillion dollars. Investors unexpectedly getting a lot poorer has had nasty repercussions in the past. What can we expect if this year’s wild excess around disruptive technology stocks continues to deflate?
In extreme cases, bursting bubbles sometimes trash the entire economy, as with Britain’s 1846 Railway Mania, Japan’s 1989 property-and-equity bubble or the pre-2007 housing-and-structured-debt bubble.
The good news is that the tech excess—I hesitate to call it a bubble— hasn’t been accompanied by an investment boom financed by new stock or debt. There are exceptions, such as Tesla, which need regular injections of new cash and would have to slow their expansion if markets turned against them. But there’s no reason why Apple, Amazon or most of the rest of Big Tech would have to cancel projects even if their stock prices halved.
The bad news is that there are plenty of other ways that falling stock prices can hit both the economy and the rest of the market.
Past bubbles have been followed by a mix of financial disruption, higher household savings and sudden changes …
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