Where Does the Money Disappear to in a Recession?

Trillions wiped off the stock market. Thousands of jobs lost. Household wealth falls to the lowest level in a decade.

But wait, where did the money go? There's no secret group in the mountains burning stacks of cash every time the market dips. In fact, during most recessions, governments print more money.

So, when it's wiped off the stock market, sliced in half, and totally lost, where is it actually going? Welcome to Alux, the place where future billionaires come to get inspired. Well, you know what?

The money wasn't even there in the first place. If you see money as something solid and fixed, as numbers in your bank account that stay the same no matter what happens in the world, then hearing something like trillions of dollars wiped off the stock market will sound like someone just vacuumed up the cash and it vanished, and it feels like the money is gone forever. But that's because we're actually confusing three things: money, price, and value.

They work together, but they're not the same. Money is a unit, a way to measure what we believe something is worth. It's what we use to count, compare, and trade.

Value is a belief, an idea of what something is worth. And that belief can change. Meanwhile, price is the agreement between the buyer and the seller.

It's the number that expresses value using money. What we usually focus on is the number. I've got $10.

But those $10 only matter if people still believe they're worth something. It's only valuable because we all agree it is. That belief is what allows money to store value over time.

In this belief system, we create money that, you know, it's not really there. It's a perception of what we think something is worth. And perception, well, it can change really, really quickly.

Especially when everyone's perception changes in the same way at the same time. When that happens, people stop trusting markets, banks, companies, and even each other. That's what changes the value of something.

Even if the number stays the same, you didn't lose cash. You lost confidence. And this lost confidence isn't limited to stocks.

Your house could suffer, too. Your property could suddenly be worth 15% less because somebody else in your area was forced to sell low, and that sale reset the belief system. Economists call this mark-to-market valuation.

What people are willing to pay becomes the new reality. No matter how much you paid for it or how much it was worth on paper just last year, the value was there because people believed in the future of the company or product. And if something threatens that future, people change their belief.

Look at what happened with Nvidia in January 2025. From January 20th to 26th, Nvidia is sitting comfortably as the most valuable company in the world. China's Deep Seek is released.

Analysts take a few days to look at the company. Over the weekend, multiple outlets flag it as a direct threat to Nvidia's core business model. On January 27th, markets open, investors react to the news, and Nvidia's stock plummets by 17%, losing $589 billion—the largest single-day market value loss.

That's not money taken or stolen. That's just investors saying, "This isn't worth what we thought it was yesterday. " On January 28th, investors look at the situation again, test it out for themselves.

They still prefer Nvidia. The stock rebounds by nearly 9%. By February 20th, the company was almost back to pre-Deep Seek release numbers.

Now, obviously, there's lots of market volatility across the board, but these numbers show you just how quickly our belief in the value of something can disappear and then come right back again. There's nothing tangible about this at all, okay? It's literally all in our heads.

The value was never printed. It was a number on a screen, an agreement between buyers and sellers that a thing—could be a stock, a property, a crypto token—was worth a certain price. When that belief disappears, the value disappears with it.

But because it's in all of our heads, it's real. If we went further with this, we would be stepping into philosophical realms. And the truth is, just because this is based on perceived belief doesn't mean that nobody is affected.

Here's how you could think about it. Okay, imagine there are 100 people on a ship. We'll call this ship the economy.

So, the ship has seven decks. It's moving upriver, and it's going to be stopping at different destinations. Nobody wants to get off, but they don't have a choice.

When the belief shakes, the people on the lower deck are forced off. They're the people living paycheck to paycheck with little to no savings. They're a part of the economy, working and spending, but they don't hold any assets.

Their value might be stored in one paycheck, one company stock, one underpaid job. When faith in those things disappears, they don't just lose value; they lose stability, shelter, and food. Any shock, like a recession, hits them first and hardest.

So, while the wealthy see disappearing belief as volatility or temporary losses, lower-income households experience it as basically getting wiped off the economic map. Recessions hit the hardest in the gap between what you think you have and what you can actually turn into cash. It's also why billionaires don't actually lose money when the media says they do.

When headlines say Musk has lost nearly $200 billion in 2025, sure, it sounds dramatic, but he's not cashing out, and nobody is taking money out of his account. That loss comes from the value of his Tesla shares dropping. And since most of his wealth is tied up in stocks he doesn't sell, it's just paper wealth.

He's as rich today as he was yesterday in terms of lifestyle, assets, and power because the money wasn't physically there to begin with. It's perceived value. And when perception cracks, people start worrying, and they start to adjust their behavior.

And this leads to the next destination, a pretty simple but worrying one. The money stops moving as fast. Now, in a healthy economy, money moves quickly, right?

But in a recession, a bottleneck forms. There's something called the velocity of money, which is how many times a single dollar gets used in a year to buy things. So, in a growing economy, $1 might change hands five to seven times in a year.

In a recession, that number drops, sometimes as low as 1. 5 times. So, what used to look like this—a restaurant getting your $20, paying the chef, the chef buys groceries, the store pays their supplier—now looks more like this: You keep the $20 in your checking account.

It sits. The restaurant never gets it. The chef's hours are cut.

The grocery store sells less. The supplier slows production. All of that sitting money means fewer transactions.

In every economy, money has a dual role: it's stored value and a medium of exchange. When that second role breaks down, when people stop spending, lending, or investing, money sits still. And when the money sits still, everything else slows down, too: opportunity, progress, momentum.

And you know, this is kind of why we created the "Start Your Business in 30 Days" challenge inside the Alux app. While most people wait for the economy to recover, you can use this time to build. We've bundled together three expert-led collections designed to help you launch something real.

Okay. Terry Rice will show you how to validate your idea and turn it into a business. Claudia Miklaus teaches you how to use personal branding to attract high-value clients.

And Michael E. Gerber, author of "The E-Myth Revisited," helps you to build systems that scale. It's all a part of Alux Premium.

And for a limited time, you can join for $19 a month, down from $29. The economy might be slowing down, but you don't have to. Okay, here's how you keep moving.

Go to your app store and download the Alux app. Come back here and scan this QR code. That'll take you to the discount.

Taking action like this is rare during a recession because most people do the opposite. Okay. In recessions, people lean hard into the stored value part and almost forget that money is also meant to move.

Their money is still there, but it's parked—like cars pulled over on the side of the highway instead of zooming by. A lot of money ends up sitting still in checking accounts because people delay big purchases. In corporate treasuries, businesses delay investments in safe assets like government bonds or money market funds because investors want stability, not risk.

We'll dive more into that one later on. Okay. People are left thinking, "I'm holding on to every dollar.

I might need it tomorrow. " These are usually working-class to lower middle-class earners and people in unstable jobs or industries hit early by recessions. The slower pace means that companies are making less money at the same time.

This threatens their overall value, and so to hold on to this value, they have to cut expenses. The easiest and biggest expense is labor costs. So, ironically, the very people slowing down their spending because they're worried about the economy are likely to be the same people who get laid off when the velocity of money slows down.

Some of them get off the ship while their bags get left behind. Those who manage to stay usually do the next thing with their money: it gets put into passive holding zones. So, savings accounts, government bonds, and money market accounts become hot tickets.

People aren't spending their money, but they're not hoarding it either. This is where the cautious savers park their money. They're usually older generations with good to moderate financial literacy and a net worth of around $10,000 to $50,000.

They've got some money, but not much, so they don't want to take any risks. In April 2020, when everyone was panicking about a pandemic recession, the personal savings rate in the U. S.

jumped to 33%. The year before, it was 7%. Now, savings accounts feel like a safety net because you can see the number and you know the bank isn't going anywhere.

A high-yield savings account can give you around a 4% interest rate, but a low-yield one can give you as little as 0. 4%. Now, remember this number when we consider inflation in a few moments.

Now, people are also putting their cash into government bonds. So, bonds work like this: The government needs money, so it borrows by selling bonds to investors. You buy a bond, which means you’re lending money to the government.

They promise to pay you interest regularly, usually once or twice a year. After a set time, maturity—like 2, 10, or 30 years—they repay the full amount, and this is called the yield. Now, bonds are considered safe because, well, most governments rarely default, especially ones like the U.

S. , U. K.

, or Germany. The yield moves opposite to the bond price. If many people are buying, the prices go up and the yield goes down.

If fewer people are buying, the price goes down and the yield goes up. Here you can see how the yields dropped during the last three recessions in 2020, 2008, and 2000 because so many more people were buying bonds. So, bonds are low risk and low return, but at least you're not losing money like you would in a panicked stock market.

Then there are money market funds. So, these are a mix between a savings account and a short-term investment. They are similar to a regular savings account, but usually with better interest rates.

So, they give you slightly higher returns than a savings account, but they still feel safe enough to not lose. Sleep over it. You can still access your money pretty easily, so it's used as a parking lot rather than for growth.

A lot of wealthy people use this option during a recession because it gives them easy access to cash if they want to buy stocks during the dip. Here, you can see the trend of people using money market accounts to park their investments during the dot-com bubble burst, the Great Recession, and the pandemic recession. And actually, as of producing this video, global money market accounts have reached an all-time high.

According to the Wall Street Journal, over $60 billion flowed into money market funds in the first few days of April. That raises the total assets to $7. 4 trillion.

For reference, during the 2008 financial crisis, money market fund assets increased from $2. 18 trillion in December 2006 to $3. 5 trillion in December 2008.

But there's a problem with this low-risk, low-reward asset. It's called inflation. Right now, core inflation in the U.

S. is at 3. 6%.

If you had your money in that 0. 4% low-interest rate savings account, you would be losing money every day. Now, the value of your number doesn't change, but it loses power because inflation makes the value of what you're buying greater.

So, let's say you've got $100 and you're deciding where to put it. In a regular savings account, the bank is going to pay you $41 after a year. In a high-yield savings account, you get $4.

54. If you buy a government bond, you get $41. A money market fund gives you around $423.

Inflation makes the prices in stores go up by $3. 60. So now your money doesn't stretch as far.

If you're not careful, your money will grow slower than how much prices are rising. And this money doesn't go anywhere, but its power is much weaker. That money that so many people put into their savings accounts during the pandemic recession got burnt up by inflation because every year your money can buy less.

So even if the number looks the same, okay, $10,000 today is not going to get you what $10,000 would get you last year. And the longer you leave it sitting in weak, interest-bearing accounts, the more power it loses. Now, the next place money flows is to the person who buys in the dip.

Stock markets, crypto, and real estate are some of the loudest shout-outs of looming recessions. People panic-sell, even at a loss, because nobody wants to be the last one holding the bag. When millions of people do that all at once, prices tank all across the board.

The person who sells in a panic is the one who loses the most. But the money they lost doesn't disappear. It gets directly transferred to whoever bought the stock at a lower price.

This person has brushed up on their finances, or they're a first-time investor with excess cash, or they're young professionals with stable jobs and a tolerance for risk. Their mindset is, "This is when fortunes are made. Time to get in when it's low.

" And in many cases, they're right. If you bought a stock for $100 and then sold it for $60, you're giving that $40 to the other person. In a year or two, when that stock climbs back up, they pocket the profit.

The difference isn't missing, okay? It's just been passed from the person who was scared to the person who was prepared. But just a quick thought on this because we see this question a lot.

If people know that they're going to lose money if they sell now, why do they do it? Why don't they wait until the stock goes back up? Well, first of all, fear moves a lot faster than logic.

Logic takes time and analysis. Fear is instant and protective. In recessions, that split-second fear says, “Get out now.

” So 99% of the time, it'll beat logic to the decision. People prefer certainty over potential, even if that certainty is a bad deal. Secondly, not every asset bounces back.

Okay, most do. But people worry that they could be holding the one that doesn't. And when you watch your money disappear day after day, sometimes for weeks on end, you worry that this could be the once-in-a-lifetime recession.

People also worry that they need liquidity in case they lose their job, so they hold on to that cash. But as the flow moves, it reaches the people who aren't really stressed about this. They're the ones who can put their money into hard assets and safe havens: gold, art, farmland.

Now, the money is flowing into assets that hold real value, even when currencies wobble. These assets aren't about growth. They're about protection and diversification.

This is for the people who think, “I don't need returns now. I need to preserve and control what I already have. ” Money flows into things that feel real and steady, things you can see, touch, and trust.

It's been valuable for thousands of years, and it doesn't rely on any company or country. When stock markets crash, gold prices go up. During the 2008 recession, gold jumped from around $730 an ounce to over $1,300 in just two years.

Farmland is another place where the rich like to park their money. It's not flashy, but it works. Okay?

People always need food no matter what the economy is doing. That's why farmland usually holds its value and can even make money. Over the past 20 years, farmland in the U.

S. has earned about 12% per year on average. Even in past recessions, its value has stayed strong.

Meanwhile, art is a little bit different. It doesn't earn money like a farm does, and it can be hard to sell quickly. But rare and well-known pieces, like those from famous artists, can still hold their value.

Right in the middle of the 2008 financial crisis, the personal art. . .

The collection of Eve St. Lauron and his partner Pierre was auctioned by Christie's in Paris. This wasn't just any auction; it was called the sale of the century.

Over 700 pieces were sold, including paintings, sculptures, and rare objects. The collection brought in over $483 million USD, making it one of the largest private art auctions in history. So, while the global economy was falling apart and financial institutions were collapsing, wealthy buyers were still spending enormous amounts on rare, tangible, emotionally valuable pieces like art.

And the best part about this right now is that these safety nets aren't limited to wealthy people anymore. Masterworks, the sponsor of today's video, makes it possible for everyday investors to be a part of this. They make it possible for you to buy shares in blue-chip art, the kind of pieces that usually sit in vaults, not on walls.

In fact, last year, Masterworks sold a Basquiat for a price of $8 million after holding it for 1,398 days. And for every $10,000 someone invested in that Basquiat, they took home over $2,600 in profit after fees. As a channel, we can't invest ourselves, but you don't need millions to get started.

You just need access. And right now, you've got it. Go to masterworks.

art/alux or scan the QR code on-screen to skip the waitlist and get in now. Because art, like gold or land, is seen as a safe haven when markets are unstable. Next, we want to talk about how money flows into big assets that have lost their value.

Now, these assets haven't lost value because they're bad or anything; they lose their value because other people can't afford to hold on to them anymore. So, money flows into apartment buildings that landlords can't maintain, businesses that are struggling, or company shares that have dropped in price. Some companies get sold at a discount because the economy is down.

Thus, private equity firms, wealthy investors, and big companies that have saved up a lot of cash and don't rely on monthly income step in to buy these assets for a good price. Think of cash-rich companies like Apple, Amazon, or Berkshire Hathaway; private equity firms like Blackstone Group and Apollo Group Management; and investors like Warren Buffett and Mohamed bin Zayed. They already know they're going to survive a recession, so their goal is to come out of it owning more than they did before.

Years later, when the economy recovers, these investments are worth a lot more than what they paid for them. A building bought for a discount during the downturn can be sold for a profit. A company that was close to closing might now be strong again, but they have new owners.

These owners are the people who planned for a recession; they were ready for it. Most likely, when the next recession comes, they'll be ready and waiting at the next and final destination. We call this the capital gravity zone.

Now, this isn't an official economic term or anything, but it sounds cool and it perfectly describes the final stop in the journey that money takes in a recession. So, this isn't for people with high salaries or even wealthy investors. This is a place for families whose money has been growing for generations.

They're the top 0. 01%. Their wealth is measured in ownership, not income, and they hold entire companies, investment funds, real estate portfolios, and influence over financial systems.

These are the people like the Walton family, who owns Walmart. Tracking their exact fortune is difficult, but estimates put them around $27 billion in 1997, just a few years before the dot-com bubble recession. Two recessions later, by 2015, Forbes estimated their net worth at $149 billion.

In 2019, it was $200 billion, and by December 2024, even after the 2020 recession, their worth is estimated to be around $430 billion. There's also the Al-Nahyan family from the UAE at $320 billion, the 8th generation Alani dynasty based in Qatar, and the Paris-based Hermès family from the world of luxury fashion. These are not overvalued tech stocks; they are multi-generational retail, fashion, media, energy, and food dynasties.

This is the final destination in a recession. It's where most of the money stops. Hardy Aluxer, which deck of the ship would you be on in this situation?

And do you have the strength to fight for your place? That's the real question here. If you're gearing up to fight for your spot, then the Alux app's 30-day Start Your Own Business Challenge is what you need.

And with that 35% discount, you'd be crazy not to take it. We'll be right there with you every step of the way. And if you're not quite ready yet, that's okay.

We've got hundreds of videos that can help you out. If you liked this one, you'd also like our "Levels of Investment Explained" video. So stay tuned for that.

And Aluxer, drop the comment "Fighter" down below if you are ready to stay on that ship until the very end. We'll see you back here next time, Aluxer. Until then, take care!