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How do we know what recession is?

Fundamentally everything purchased in the economy (distribution of scarce goods and services) is either funded by cash or by debt.

Ray Dalio's debt/credit cycle
Ray Dalio's debt/credit cycle

Debt helps you spend today what you don't have so that tomorrow you won't spend what you do have.

Debt is a claim on the future money. (Leverage)

Money is a claim on value. (Currency)

Value is what allows you to fulfill your desires/wants/needs. (Wealth)

A boom happens when future prospects seem like they will be like this forever. And hence people feel confident in taking on leverage. But when reality hits, they feel like the world is crashing down, then we have what's called recession.

If the boom is you spending what you don’t have, the recession is paying for that. Cycle up and down.


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