Elon Musk signals he expects a financial crisis as the Fed’s interest-rate hikes choke the economy:- Elon Musk has repeatedly warned that the Federal Reserve’s interest rate hikes will hurt companies and spark an economic recession.
When David Sacks warned on Sunday that rate hikes could hit banks, commercial real estate, and government debt, he doubled down on that view. “Concur,” Musk tweeted on Sunday in response to Venture Capitalist.
Elon Musk has repeatedly warned that raising interest rates by the Federal Reserve would hurt companies and lead to an economic recession. He doubled that outlook on Sunday after venture capitalist David Sacks warned that the hike could hit banks, commercial real estate, and government debt.
“Concur,” Musk tweeted in response to his longtime friend’s comments.
Kraft Ventures co-founder Sacks said the first phase of the crisis is already underway — in the form of the ongoing turmoil among small and regional banks that began last month with the collapse of Silicon Valley Bank. He warned that the second and third phases of “the financial crisis we are in” is yet to come.
“These effects are just math and playing out through the financial system. I think they will roughly correspond to stage 3 of the financial crisis,” Sacks tweeted.
- “The small/regional bank crisis stemmed from unrealized losses on long-dated bonds.
- The CRE (commercial real estate) crisis stemmed from the seizure of the debt markets for new loans and the loss of existing CRE loan portfolios (which are also unrealized losses).
- The government debt crisis has been compounded by rising debt service costs at the federal level, budget deficits at the state and local levels, and sovereign debt issues at the international level,” he listed in the tweet.
In response to rapid inflation, the US central bank raised rates from near zero to nearly 5% over the past year. According to Sacks, it had three main effects.
The rate of increase increases in the value of long-term bonds, he added. It played a major role in the collapse of Silicon Valley Bank in March, which was triggered by heavy losses on its bond portfolio.
Higher rates have made credit more expensive, affecting businesses such as commercial real estate, and they have also increased the government’s borrowing costs.
The CEOs of Tesla, Twitter, and SpaceX have been criticizing the Fed since late last year for its aggressive hiking campaign aimed at calming inflation running at historic highs.
“Elon Musk signals he expects a financial crisis as the Fed’s interest-rate hikes choke the economy”
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Information Source:- https://www.businessinsider.in/stock-market/news/elon-musk-signals-he-expects-a-financial-crisis-as-the-feds-interest-rate-hikes-choke-the-economy/articleshow/99218880.cms