Where Does "Wiped Out" Value Go?

Wealth is savings, not credit... if your home represents all of your savings, and the market's willingness to pay you for it drops from 100,000 to 60,000, then you've lost 40% of you savings... gone...zip... since the demand was backed by credit, and people's willingness to extend credit is withdrawn, or was the result of economic miscalculation anyway, then there is no other side of the ledger for the evaporated 40,000. If you can hold out 30-40 years, you might get it back.

Let's say you invest 100,000 savings in a vineyard. So does everyone else. Your wine must get $20 a bottle for you to earn a 10% return. Your best offer is $2 an bottle. 90% of you wealth is wiped out, there is no other side to the ledger. if you used your savings, the damage is done. If you borrowed money to invest in this vineyard, your troubles have just begun.

The boom was the expansion of capacity based on excessive manipulation of currency and credit. One aspect of the boom was overinvestment, another was malinvestment. Too much vineyard capacity is overinvestment, planting Merlot grapes when everyone else is planting the same thing is malinvestment.

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