Where does all money and wealth go in the recession?
In: 6245
Money itself doesn’t go anywhere. Non-monetary wealth — such as the market value of real estate or investments — is what decreases, because that wealth was always dependent on the state of the market at any given moment.
So for example, if you have a lot of cash when a recession hits and do not depend on many assets whose value is market-driven, you will do fine in a recession. If you have a *really really whole lot* of cash, you might actually do well in a recession, because you will be in a position to buy a lot of stuff on the open market at low prices. (Warren Buffett famously did this during the “dot com bust,” for example.)
Well okay that’s not 100% true. Macro-economically, money can be affected too, indirectly, because during a recession most people tend to hoard their cash more. Since most people do not have a lot of cash, and they ideally don’t want to sell their market-backed assets at a low recessionary value if they can at all avoid doing so.
So while the actual value of money may not change as the result of the recession, monetary scarcity can become a thing on a large scale.
Latest Answers