Policymakers in Washington are once again expressing concern over global economic imbalances, particularly as the United States relies heavily on foreign investors to purchase a growing volume of Treasury securities, while China’s export growth continues to widen trade deficits in Western economies. Beyond these issues, there is an often-overlooked aspect related to the size of global financial markets compared to the “real” economy, which consists of tangible assets and production.

A recent report from the McKinsey Global Institute offers new insight into this dynamic by estimating the world’s total assets, liabilities, and wealth. According to their findings, the global balance sheet reached an estimated $1.8 quadrillion in 2025, up by $100 trillion from the previous year. This total far exceeds global GDP, which stood at around $117 trillion. Real assets—such as real estate, infrastructure, machinery, and intellectual property—accounted for approximately $620 trillion, while financial assets including equities, loans, bonds, and currency totaled about $550 trillion. These figures were balanced against $600 trillion of global wealth, primarily held by households.

The data reveal a striking trend: global household wealth has increased more than fourfold since 2000, significantly outpacing growth in the real economy, largely driven by asset price inflation. The United States holds roughly $175 trillion of this wealth, China $75 trillion. Where two decades ago rising real estate prices were the primary driver of wealth gains, last year saw surging equity prices, especially in the US, account for 57% of the increase. Real assets now constitute only about 20% of the wealth composition, a sharp decline compared to previous periods. US asset prices are currently valued at 3.7 times GDP, roughly double the historic average. This suggests financial asset growth has become increasingly detached from real economic output.

Household debt relative to GDP has decreased since the 2008 financial crisis, particularly in the US. Conversely, government debt burdens have escalated in the United States, Japan, and Europe, while corporate debt in China has experienced rapid expansion. China’s productive assets relative to GDP have doubled since 2000; in contrast, the same ratio in the US has stagnated and is now below levels seen in the early 1980s. This divergence raises questions about the respective productivity of these assets in each country.

Some analysts argue that Chinese productive assets may suffer from overinvestment, while US figures might underestimate digital and intangible investments. Federal Reserve officials, including former chair Kevin Warsh, have expressed optimism that advancements in artificial intelligence (AI) could trigger a surge in productivity, potentially allowing the US economy to manage its rising sovereign debt and justify elevated equity market valuations.

Financialization—where capital markets and financial instruments play an outsized role relative to the real economy—is seen by many economists as beneficial to economic development. Institutions like the International Monetary Fund have long encouraged increased financial market depth to spur growth, particularly in emerging economies. The expanding size of US capital markets might therefore be interpreted as a sign of economic strength and sophistication.

Nonetheless, there are voices cautioning against excessive financialization. Jan Mischke of McKinsey describes the current pattern as “pretty extreme” and warns of significant risks. The Bank for International Settlements has highlighted the potential for a major correction in US equity markets, exacerbated by the current hype surrounding AI innovations, to have amplified global economic consequences compared with past episodes. Competition from emerging technologies, such as China’s open-source AI model Kimi K3 launched recently, may introduce additional volatility.

The IMF has also pointed to rising long-term interest rates as a factor that could trigger sovereign debt crises, possibly forcing governments to resort to inflation or debt restructuring absent a dramatic productivity boost. Beyond economic metrics, some commentators have raised philosophical and social concerns, noting that heavy financialization shifts the role of individuals from creators of tangible value to participants reliant on financial mechanisms. This perspective echoes an observation made in 2007 by an Islamic finance scholar likening modern markets to candyfloss—visually impressive but structurally fragile.

Despite these warnings, investor appetite for US equities and Chinese corporate loans remains strong, sustaining a global economy increasingly dependent on financial market performance. Whether this reliance on what some call a "financial candyfloss" economy will persist without significant disruption remains an open question as markets and policymakers navigate these complex interdependencies.