Arnold Kling: “For a different and important perspective on the financial crisis, I want to draw your attention to Robert Merton’s remarks at Thursday’s Harvard forum, linked to here. The Nobel Laureate begins with a back-of-the-envelope calculation. Data suggest that between June of 2007 and June of 2008, average home prices in the U.S. fell by 16 to 18 percent. Near the peak of the housing market, total housing wealth was between $20 and $23 trillion.

Simple multiplication says that we have lost somewhere around $3.5 to $4 trillion. As Merton says,

When you have this wealth loss, nothing that’s done here will resurrect it.

On top of that, not mentioned by Merton but alluded to by Rogoff, there is the drop in wealth represented by the decline in the dollar. Marking our assets to world prices, a lower dollar lowers our wealth. Furthermore, Rogoff and other economists believe that the dollar decline has further to go.” (econlib)