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 hammer companies and spark an economic downturn.
- He doubled down on that view Sunday after David Sacks warned rate hikes could hit banks, commercial real estate and government debt.
Elon Musk has repeatedly warned that the Federal Reserve's interest-rate increases will hurt companies and spark an economic downturn. He doubled down on that view on Sunday after venture capitalist David Sacks warned the hikes could hit banks, commercial real estate, and government debts.
"Concur," Musk tweeted in response to his longtime friend's comments.
Sacks, the co-founder of Craft Ventures, said that the first stage of the crisis is already in play - in the form of the ongoing turmoil among small and regional banks that started with the collapse of Silicon Valley bank last month. He warned that the second and third stages of "the financial crisis we're in" are still yet to come.
"These effects are just math and have to play out through the financial system. I think they will roughly correspond to the 3 stages of the financial crisis we're in," Sacks tweeted.
- "Small/regional bank crisis precipitated by unrealized losses on long-dated bonds.
- CRE (commercial real estate) crisis precipitated by credit markets seizing up for new loans and impairment of existing CRE loan portfolios (which are also unrealized losses).
- Government debt crisis precipitated by spike in debt service costs at federal level, budget deficits at state and local level, and sovereign debt issues at international level," he listed in the tweet.
Responding to rapid inflation, the US central bank raised rates from near-zero to around 5% over the past year. This, according to Sacks, had three main effects.
The rate increases undercut the value of long-dated bonds, he said. That played a major role in the collapse of Silicon Valley Bank in March, which was triggered by massive losses on its bond portfolio.
Higher rates have made credit more expensive, hitting businesses such as commercial real estate, and they also increased government borrowing costs.
The Tesla, Twitter, and SpaceX CEO has been avidly criticizing the Fed since late last year for its aggressive hiking campaign intended to cool inflation running at historic highs.
- Coforge, Fortis Health record increased mutual fund holding in Q3, HDFC Bank declines
- Astronomers find planet that seems too humongous to be orbiting its parent star!
- Penguins employ thousands of microsleeps to achieve 11 hours' slumber daily!
- Ashok Gehlot: Magician leaves centre stage in Rajasthan
- Trauma made Abrar an 'Animal': Bobby Deol on his negative role