When asset values decline significantly (30-35%), it triggers a reverse wealth effect that can reduce GDP by 80-90%, causing capital gains tax revenues (10% of total) to vanish, which then creates a negative self-reinforcing feedback loop that destabilizes bond markets and spirals into a broader economic crisis.
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The terrifying math behind a potential market collapse.Added:
That would be a, say, a 30-35% decline.
Well, 35% on 250% of GDP is 80-90% of GDP, the reverse wealth effect. Oh my gosh. 10% of our tax revenues are capital gains.
They go to zero. So, you can see the budget deficit blowing up. You can see the bond market getting smoked. You can see this kind of negative self-reinforcing effect.
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