The war with Iran’s likely to cost American taxpayers more than $1 trillion, according to a Harvard war budgeting expert. I mentioned that a couple of days ago.
The conflict also cost US households nearly $2 trillion in equity wealth during the first three months of 2026.
Specifically, the value of stocks held by the “household” sector (there’s some definitional quibbling to be had there, but I won’t trouble you with such tedium on a weekend) fell by $1.819 trillion in Q1, according to Fed data released this month.
That’s the bad news. The good news is, the (on some measures historic) rebound from the late-March war lows likely equates to something like $8 trillion on the same household equity wealth tally, leaving America’s asset-rich much better off “for” (read: despite) the fighting.
The figure above shows you all of that, and it also serves as a reminder of the staggering wealth created by the stock market in the 2020s: Including the estimate for Q2, the cumulative sum’s around $46 trillion.
That’s part and parcel of what BofA’s Michael Hartnett calls the “boom loop,” euphemistic shorthand for the self-feeding dynamic behind an unprecedented surge in nominal US GDP.
Here’s how it works: Asset price inflation feeds on itself as equity wealth drives spending and preserves corporate pricing power, inflating profits and pushing real-economy prices higher alongside stocks.
There’s the result. Over the same period during which the US stock market created $46 trillion in paper wealth, nominal US GDP’s expanded by 75%. Small wonder inflation’s still elevated.
Some (many) worry this perpetual motion machine will malfunction at some point in the not-so-distant future. That it’s all blood from a stone from here with the saving rate at a rock-bottom 2.6% and real incomes contracting again.
The figure below, from SocGen’s Albert Edwards, speaks to that point.
As you can see, the saving rate maps fairly well onto a ratio of household wealth to income, which is intuitive. At least visually, the relationship’s even stronger today than it was in the past.
“The household sector balance sheet may seem healthy, but the only reason consumption has kept rising c.2% YoY is that households perceive they are wealthier and so able to save less,” Edwards said this week.
The problem, obviously, is that stocks can go down as well as up. If they go down, the saving rate will probably rise, and “resilient” spending would be anything but. As Albert put it, “both consumption and investment” — i.e., US GDP — are “dependent on the AI ‘bubble’ not bursting.”
The catch-22 is that because the bubble’s contributing to the same inflation that threatens spending in the lower-half of the so-called “K,” there’s a sense in which the Wall Street frenzy needs to abate, at least a little bit. Otherwise, the “boom loop” pressure cooker could explode, leaving stagflation in its wake.
Hartnett spoke to that, cautioning that the only way to avert a “bear move from ‘inflation boom’ to ‘stagflation bust'” is if a pronounced drop in oil prices “offsets the AI/wealth price spiral.”
On Saturday, Iran closed the Strait of Hormuz again, citing Israel’s military campaign in Lebanon.
