According to whom?
Per this report: http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf
the cost of the S&L crisis to the US gov’t, which extended from 1986 to 1995 was $153 billion, with roughly another $1-$1.5 billion in litigation settlements which extended through Y2000.
Taking 1990 as the “centerline” of this era, US GDP was roughly in the $7 trillion (= 7000 billion) range at the time. The $155 billion lost in the S&L crisis, which occurred over about a decade, was thus about 2.2% (155/7000) of GDP for one year and thus about .22% of GDP assuming it was spread out over ten years.
The losses sustained in the current crisis are at present unknowable, but I have read estimates of from $2.5 - $4 trillion. Taking the smallest estimate, $2.5 trillion divided by $14 trillion = 17.8% of GDP or 1.78% of ten-year GDP or about 7 times greater than the impact of the S&L crisis. **SO FAR.** We are obviously nowhere near completion of the entire home foreclosure deal and the rising interest rates now appearing on the horizon are not going to make this better. (”This” = the ability of homes to re-acquire their original sales prices, or, in the case of comm RE, the ability of a comm preperty to cashflow or otherwise service its debt...not to mention recover its last purchase price) We have scarcely even touched resolution of commercial real estate bubble. Nor have we even scratched the surface of the insolvency of maybe ten major states, CA, NY, among them. So tentatively, I’m going to call our present crisis about 20-25 times, perhaps 40 times as large as the S&L crisis. Think you can so casually compare the impact of two events that far apart in scale?
I don’t accept this article as definitive for RTC losses because it doesn’t seem to take into account the gain in the value of the assets that were eventually sold off. The article talks about that on page 32 under “RTC Estimated Resolution Costs” but there appears to be no line item for profit due to asset sales in Table 4 where RTC cost is calculated. (maybe I am missing something here)
But my larger point is that I have heard these real estate collapse doom and gloom stories before (back in the 1990’s). They didn’t pan out then, and I doubt they will for this cycle.
Even if the real estate losses do end up being 1.8% (source?) of GDP for the next 10 years, I just don’t think an additional 1.8% GDP structural deficit is enough to tank the US economy.
Caveat. There is a limit to the borrowing power of the US Treasury. A simultaneous collapse in a stock and real estate bubble would likely be enough to force the economy into a repeat of the 1930’s Depression.
I just don’t see it for this cycle.