How do we know when the economy is collapsing?


Aside from variable economic indicators, inverted yield curves, ect., what are the few things that happen preceding the collapse of an economy. Is it skyrocketing prices of precious metals, divestment against currency, government printing ridiculously large notes…?

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When prices rise, purchasing power does not, and household/personal debt can no longer be serviced.

Think 2008 housing crash, but across everything.

No one has money, so they can’t buy, but sellers can’t or won’t lower prices. Eventually these businesses will collapse with no customers and others will have to rise from the rubble. The market still needs servicing but from companies that can afford to sell at reset prices.

It will be the same companies, bankrupt, renamed, absorbed, spun off. Just a reset borne on the backs of lower socioeconomic classes, e.g. the 99%.

There are a few different metrics that can be measured:

* There are stock market indexes like the Dow Jones, which tracks the value of the 30 largest companies on the New York Stock Exchange and NASDAQ. The value of their stocks is generally considered a bellwether for the health of the stock market as a whole.

* The inflation rate, or the rate at which the average of a bunch of different consumer goods (a consumer price index) rises per year. While inflation is usually not in and of itself a bad thing, a sudden spike in it (either by a sharp rise in the cost of goods or a lot of money entering into circulation) is generally a bad thing.

* You can also look at the markets for specific goods. For instance, if there’s a sudden shortage in oil and the price spikes, you know that it’ll cause prices to rise in a lot of other industries as a result (e.g., anything that relies on trucks or diesel trains for their logistics).

* The Federal Reserve’s interest rates. The Federal Reserve, the US’s central bank, can raise or lower interest rates if they want to reduce or increase the amount of money in circulation, respectively. For instance, the Federal Reserve jacking up interest rates throughout Biden’s term is generally seen as damage control for widespread inflation.

* “Real” GDP growth. While the nominal growth of the GDP (Gross Domestic Product) is just the total increased value of our economy, the real GDP growth is the nominal growth adjusted for inflation. So if the nominal GDP grew by 5%, but inflation was 6%, then the economy technically shrank.

ELI5: The economy is like a big piggy bank that we all use to buy things we need and want. When the piggy bank is full, there’s a lot of money for everyone to use, and things are good. But sometimes, the piggy bank might start to run low, and that’s when we say the economy is “collapsing”.

Imagine you and your friends have a big toy box that you all share. One day, you notice that there are less toys in the box and some of your friends are fighting over the toys that are left. That’s kind of like what happens when the economy is collapsing. There’s not enough money for everyone, so people start to get worried and things can get a little chaotic.

It’s like when you go to the store with your mom or dad, and they tell you they don’t have enough money to buy all the things you want. That’s because the piggy bank is running low, and they have to be careful with how they spend their money.

TL;DR: The economy can be thought of as a big piggy bank that we all use to buy things we need and want. When the piggy bank is full, there’s plenty of money for everyone, but when it starts to run low, we say the economy is collapsing. This can happen when there’s not enough money for everyone and people start to get worried about how they’re going to buy what they need.