We conducted a four-wave prospective study of Palestinian adults living in the West Bank, Gaza Strip, and East Jerusalem, interviewed between 2007 and 2009 at 6-month interval to explore transactional relationships between resource loss (i.e., intra and interpersonal resource loss) and psychological distress (i.e., posttraumatic stress disorder and depression symptoms). Initially, 1196 Palestinians completed the first wave interview and 752 of these participants completed all four interviews. A cross-lagged panel design was constructed to model the effects of trauma exposure on both resource loss and psychological distress and the subsequent reciprocal effects of resource loss and psychological distress across four time waves. Specifically, resource loss was modeled to predict distress, which in turn was expected to predict further resource loss. Structural equation modeling was used to test this design. We found that psychological distress significantly predicts resource loss across shorter, 6-month time waves, but that resource loss predicts distress across longer, 12-month intervals. These findings support the Conservation of Resources theory's corollary of loss spirals.