by Mika » 26 Apr 2024, 14:12 In simple term a recession is a period when economic activities slow down. When there is a recession the market goes down. There are different reasons why it happens. Sometimes when the market has been doing really well for a while, out of nowhere it starts going down. The market does not always peaks, it also goes down, it is always waiting for the bubble to burst. Sometimes recession occurs due to external, something like the corona pandemic or the war in Ukraine. Russia-Ukraine war is in the second year, Israel and Palestine are fighting for many months and now Iran has also gone into the war with Israel. The recession is probably going to continue for a long time.
When there's a recession, value of money goes down, or let’s say purchasing power of money goes down. Since money isn't worth as much as it used to, governments try to fix this problem by printing more money. Money no longer has gold standard, governments do not have to deposit gold to print money, now they can print as much money as they want. This situation makes the economy worse.
There is also an interesting twist to recession. During recessions, rich people get richer. If you don’t believe me you just have to go back during the Covid pandemic, millionaires became billionaires and billionaires’ wealth grew by double digit. The world is polarizing for war and recession will continue to grow strong and in the mean time rich people will continue to get richer. We are not sure how long it will last, but what we can expect that this recession will make new millionaires and billionaires.
How do people get rich during recession? Well, during a recession, people stop buying things because of low income and businesses stop making a lot of profits because fewer people are buying. Because of low economic activities, prices of assets go down. For example, real estate market and stock market will lose value. The property that was selling for $200k would now cost just around $170K, or the stock that was trading for $100 would be trading for $70. People who are sitting on a pile of cash start buying assets. When the market returns, the value of these assets will go up and these people would be rich. I will give an example from crypto market. In 2021, Bitcoin went up to $68K and then in 2023, it went below $25k. If you had bought a lot of bitcoins when it was down buy this time, you would have grown richer as bitcoin is above $64K.
