Where does all money and wealth go in the recession?
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The cheeky answer would be that rich people and banks are hoarding it. But that’s (kindof) a misleading understanding.
A recession is when spending and investment slow down. Consumers are afraid to make purchases, banks are afraid to make loans, businesses and investors are afraid to make investments in expansion. So instead of money *circulating* and moving quickly between buyers and sellers and lenders and debtors, people are kindof holding back, keeping what they can in savings, not taking any risks.
Also, and perhaps even more importantly, some of the “money” wasn’t exactly there in the first place. Loans/debts were getting passed around and treated as if they were money, but then some shock or failure happens and it turns out some of those debts aren’t going to be paid eventually, they’re just going to default. So that debt someone owns that was supposedly “worth” $10,000 or something is actually only worth $2,000, or maybe even just 0. Money gets wiped off of balance sheets.
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