Where does all money and wealth go in the recession?
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Four people are living in a village.
– one person makes food
– one person makes fuel
– one person makes baskets
– one person makes shows for Netflix
It’s going great. The food person makes money and has no problem paying his expenses. The fuel person likewise. And the basket person is selling a lot. And they all subscribe to Netflix.
Then Netflix starts doing poorly, and the person making Netflix is let go.
The Netflix person needs to cut down on costs. She buys less fuel, completely stops buying baskets to save money, and buys as little food as possible.
Suddenly the basket person has trouble making ends meet, because the Netflix person no longer buys any baskets. He needs to stop buying fuel and buy the cheapest foods to be able to pay rent for his shop and buy twigs for his baskets. He needs to charge more for each basket sold if he wants to continue being able to survive on his job, so he raises his price for baskets.
Now the fuel girl is almost going out of business because her income has decreased so much. She really needs to increase prices and cut down on spending.
And the food guy is also in trouble. He used to be able to use his income to produce more but now that he earns less he can’t afford it. It’s more costly per unit to produce less, and he needs to cover other costs as well. Can’t afford fuel, baskets, and definitely no Netflix subscription.
Now it’s going REALLY bad for the basket person. Twigs have increased in prices as well because the twig people’s living costs and production costs also increased, which increases the price the basket guy must sell his baskets for even further, yada yada yada…
This is of course a very exaggurated example, but the economy slows down and can in extreme situations almost grind to a halt.
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