Recessions and liquidity crises are different animals, and you can have one without the other, although they often occur together. From James Rickards a dailyreckoning.com:
Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is “yes” and it’s coming quickly.
That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it’s critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle.
It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses, and declining asset prices in stocks and real estate.
The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now).
Sometimes an external supply shock occurs which causes a recessionary reaction. This happened after the Arab Oil Embargo of 1973, which caused a severe recession from November 1973 to March 1975. Recessions can also arise when asset bubbles pop such as the stock market crash in 1929 or the bursting of a real estate bubble caused by the Savings & Loan crisis in 1990.
Whatever the cause, the course of a recession is somewhat standard. Eventually asset prices bottom, those with cash go shopping for bargains in stocks, inventory liquidations end, and consumers resume some discretionary spending. These tentative steps eventually lead to a recovery and new expansion often with help from fiscal policy.