In examining the likelihood of a global economic recession, Chris Giles (“Is the world heading for recession?” Big Read, May 21) might have drawn attention to how the recent extraordinary evaporation of financial market wealth is bound to negatively impact global consumer demand.

Since the start of the year, the simultaneous slump in the equity, bond and cryptocurrency markets has caused US financial market wealth to decline by an estimated $12tn, or around 50 per cent of US gross domestic product.

If the Federal Reserve’s estimates are correct — that a $1 sustained loss in wealth leads to a decline in consumption of around 4 cents — the recent loss of financial market wealth could by itself lead to a decline in consumption of 2 percentage points of GDP.

This is the last thing that the US economy needs at a time when wages are being eroded by inflation, housing demand is being negatively affected by an abrupt spike in mortgage rates and the traded goods sector has to contend with a dollar at a 20-year high.

Desmond Lachman
American Enterprise Institute
Washington, DC, US