Dire Prediction About the Economy by Elon Musk

    The billionaire believes a bold move by the Fed could be more devastating to the economy than current inflation.

    Rising prices for goods and services are at their highest level in 40 years, severely affecting household purchasing power.

    To ease the burden on consumers, the US Federal Reserve has launched an aggressive monetary policy characterized by a sharp rise in interest rates. Economists warn that this monetary policy, which is also being observed in other regions of the world, particularly in Europe at the European Central Bank, could trigger a so-called hard landing for the US economy. In principle, if the Fed continues to be aggressive in tightening monetary policy, it risks a recession.

    While many companies have passed their rising costs on to consumers by raising the prices of their products, there are also many companies that have started laying off employees. Alphabet (GOOGL), the parent company of internet giant Google, has just warned that the company is likely to lay off workers in the near future to be 20% more efficient than it is today.

    The more we try to understand macroeconomics, the more insecure we feel about it, CEO Sundar Pichai said at the Code 2022 annual conference in Los Angeles on Sept. 6. Macroeconomic performance correlates with ad spend, consumer spend, and so on.

    Fed Might Cause Deflation

    But despite the warnings, the Fed has decided to continue its fight against inflation. In his final public statements ahead of the September 21 monetary policy meeting, Fed Chair Jerome Powell essentially cemented the case for a third straight rate hike of 75 basis points.

    We must act boldly and decisively now, as we have done thus far, and we must hang in there until the job is done, Powell said Sept. 8. The Fed has and accepts responsibility for price stability.

    CME Groups FedWatch is pricing an 86% chance of a 75 basis point rate hike, the third in a row, as investors look for a so-called final fed funds rate north of 4% before Powell signals a pause in monetary policy Put on.

    Elon Musk, the richest man in the world, believes that if the Fed goes ahead with a huge rate hike, as markets now expect, the institution will cause deflation. In short, most goods and services will be ridiculously cheap.

    A bigger Fed rate hike risks deflation, the CEO of electric vehicle maker Tesla (TSLA) said on Twitter Sept. 9.

    He did not give further details.

    Musk’s tweet provoked many reactions, including that of Europac chief economist and global strategist Peter Schiff. The latter does not agree with the serial entrepreneur and rather believes the opposite. For Schiff, a major rate hike by the Fed could cause hyperinflation and a deep recession. He added that this could lead to a worse financial crisis than 2008.

    It risks #hyperinflation. Higher debt service costs, a severe #recession, skyrocketing federal budget deficits and plummeting asset prices will produce a worse financial crisis than 2008. The #Fed will respond with massive QE [quantitative easing], fueling the dollar and sending consumer prices skyrocketing. said ship.

    Musk and Deflation

    Deflation is defined as the opposite of inflation. It is characterized by a continuous decline in the general price level. It can encourage households to postpone their purchasing decisions while waiting for further price declines and, most importantly, worsen the financial situation of borrowers, economists say.

    The consequences can be devastating for the economy, as regular price falls encourage households to postpone their purchasing decisions while waiting for further price declines. This behavior can lead to a decrease in overall consumption and an increase in inventories by companies that can no longer sell their products. In response, they reduce their production and investments.

    Deflation can be caused by higher productivity or lower demand.

    Cases of deflation are rare in rich countries. There are only two examples of this over the past century: the deflation of the 1930s that hit the US and then Europe, and the one that hit the Japanese economy in the late 1990s.

    This isn’t the first time Musk has predicted the era of lower prices. Back in April, the billionaire predicted we would soon be entering a world of plenty where most things would cost nothing. But this deflation would not be due to a monetary decision, but to major advances in artificial intelligence and robotics that will increasingly be used in our daily lives.

    This will truly be a world of plenty. All goods and services are available to anyone who wants them. It will be so cheap to have goods and services, it will be ridiculous, the billionaire said in an April 17 interview with Ted Talks head Chris Anderson.

    He added: “It’s going to be a world of plenty. The only scarcity that will exist in the future is the one that we as humans want to create.

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