Thursday, December 04, 2008

How much wealth did the housing bust eliminate?

Did you guess $6 trillion?
Real balance effects (wonkish) - Paul Krugman Blog -

... Since I’m rushing off to class, let me do this from memory. Before the world went crazy, the US monetary base was about $800 billion. Suppose that the price level fell 20 percent. This would raise the real value of that base by $160 billion. Right there you can see the problem — the housing bust has wiped out something like $6 trillion of wealth; compare that with the effects of even a drastic fall in the aggregate price level....
Sure, it was never real. But .06 quadrillion dollars ain't nothing, even though it's a fraction of the .4-.5 quadrillion dollars now being deleveraged.

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