Money 101: Economy vs. Markets -- what's the difference

in today's making sense. Lesson money. One a one. We want to a talk a little bit about the difference between markets and the economy. A lot of people will use the terms interchangeably, but they really are different. Let's make sure we know the difference. Let's talk about the economy and a measure of the economy. GDP, gross domestic product. What does that mean? That is the sum total of all the goods and services produced in this economy. It's a big number, no doubt about it. That's what the economy is. It's all the little things that are done as people a make their way through society and be earn a living. So whether you are selling someone a pair of shoes or whether you're providing a service like cleaning their pool or cutting their lawn or fixing a drain, all that adds into the economy. One of the big piece of the economy is the multiplier effect. What does that mean? That means that when I spend a dollar to get a cup of coffee, then they take that dollar and they go buy more coffee or the owner takes the dollar and he goes, pays his mortgage or but the money moves, it keeps moving. And so when there is economic distress, that money, that velocity of money begins to slow down and that hurts. The economy is, well, money, and it's to speed up. We need velocity. We need money. Go from one place to another for the economy to really home. Then you have markets. Stock market, bond market, commodity markets, international markets. The markets are not the economy, but they are tied together. Obviously, markets usually kind of forecast what is coming in the economy when we see trouble coming for the economy, the market, we usually sell off pretty quickly at the front end. Also, usually before you hit bottom in the economy, markets, especially the stock market, will turn up in anticipation of a rebound. So they're not the same, but they are tied to get you. Something we need to realize is the U. S. Doesn't stand low were part of a big international financial system as well, and we need to realize that great American companies like Nike or Starbucks or McDonald's they sell a lot of their goods overseas. A big chunk of the revenue comes from overseas as well. You know, there's no saying that it's a recession when your neighbor loses his job. It's a depression. When you lose your job, that's not quite true. But a recession is. When an economy contracts, it gets a little smaller. Ah, depressions when it gets a lot smaller in a short amount of time, but markets they're not the same. But markets can often forecast when that's going to happen. Think of it this way on economies, like a big battle ship or aircraft carrier takes a little while to turn, either in a positive or negative direction. But markets could turn on a dime, and that's why they could be good forecast mechanisms that's making sense of markets and the economy.