Today, amid TALF, TARP and other government bailouts commonly known by their initials, Mosler said, "Banks are lending," but added after a slight pause, "at least to each other." He said liquidity is "still the greatest challenge," pointing out that an emerging question among lenders appears to be "who goes first?"

Despite what he called government's attempts at restoring liquidity, Mosler said the real estate industry has yet to see it. Speaking to current and future uncertainty, Mosler noted the $400 billion in commercial real estate mortgages set to mature over the next three years, and said there's really no telling how much distressed property will come onto the market.

As of June 4, Manhattan was home to 74 assets considered to be troubled assets according to Real Capital Analytics. The value of those properties was listed at $7.5 billion. The outer boroughs contained slightly more than $1 billion in distressed property; Long Island, $595 million; and Westchester, $172 million.

Noting opportunity on the horizon, Mosler said that 2010 and 2011 could prove to be times for "extraordinary wealth creation." As for rent appreciations, Mosler said questions remain: for example, how much is cyclical and whether rents will peak at $100 or $150 per square foot.

Calling Downtown "complex," he says a healthy Lower Manhattan is tied to a healthy Midtown. Mosler said he's happy that developer Larry Silverstein is building on a demand basis, saying that delays in construction will benefit the market and that new space coming on line in 2014 or 2015 is "okay."

Overall Mosler said, "don't write off New York City as far as rents go, we're sitting on a tiny island," Mosler says. But Mosler closed by telling the group at Manhattan's University Club of an even greater threat than the current downturn. "The greatest risk to this country and the macro-economic environment is another war," he said. "Getting beyond the economic issues, that's what keeps me up the most."

Following his YMWREA presentation, Mosler spoke with GlobeSt.com. Responding to Gov. David Paterson's speech Monday touting sustainability and high tech Mosler agreed that the city's economy was in need of greater diversification.

"We have to have an innovative sector both in the commercial real estate industry as well as in the economy," Mosler said. "But I think it's going to come in broad waves. A lot of young people, beyond those who've maybe said 'the financial industry is not for me' but do want to do creative deals, may want to raise a fund to acquire real estate or raise a fund to be in the pharmaceutical business or related industries like that."

He said he thinks government partnerships with institutions will help inspire people to want something different. "People want something different, out of their careers and lives, and I think that's ultimately coming."