Where does all money and wealth go in the recession?
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So a bunch of these answers are wrong. It’s not people hoarding anything, not spending enough, or any of that nonsense.
What is actually happening during a recession is a correction of past mistakes. So for example, imagine you own a restaurant in a city and where the world cup is playing. You aren’t a soccer fan, so you don’t know why you have a LOT more customers than usual. This is the boom. But you mistakenly think that your good fortune is permanent. You hire new servers, cooks, and even take out a loan to add a new room and buy another grill. Then the world cup ends and the new customers stop coming. You only see your old customers. Well now you have a loan to pay off and additional staff to pay. If you continue paying them you will go under. So you lay off those extra servers, sell your grill, try to cancel your construction, and whatnot. And you take a loss doing all of that. Now you need to work overtime to make up for it. This is your personal recession.
You are having to endure the recession because of your past mistakes. Not because customers are hoarding their money. You mistakenly splurged on equipment and employees while thinking the world cup crowd was permanent. While the recession is painful, it is necessary for you to stay in business. It is the “correction”. In short, it is the cure not the disease.
Likewise, recessions in our history have been corrections for previous mistakes. The housing crisis was a result of too loose lending prior. The 2000 recession was a correction after the dot-com bubble.
So to answer your question.. the money doesn’t really “go” anywhere. It still exists. Whoever had those dollars before still have them. People still exchange stuff with dollars. But people also owned stuff that they thought was more valuable than it really was (like your restaurant.. or stocks, etc.). The value of their other assets lost value. People are not willing to buy them for as much as they would have prior. So they lost wealth, the money that people use across the country didn’t evaporate with it.
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