Elon Musk: Recession is 'Actually a Good Thing’ And ‘Some Bankruptcies Need to Happen’
07:54 GMT 27.05.2022 (Updated: 15:19 GMT 28.05.2023)
© AP Photo / Hannibal Hanschke
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As fears of a recession in the US continue to grow, with the Federal Reserve tightening monetary policy to cool down inflation which remains close to a 40-year high, registering at 8.3 percent in April, Tesla's chief executive Elon Musk weighed in with his own idiosyncratic take on the matter.
Elon Musk, the chief executive of Tesla Inc and SpaceX, has claimed that recession is “actually a good thing”, and “some bankruptcies need to happen”.
Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen.
— Elon Musk (@elonmusk) May 27, 2022
Also, all the Covid stay-at-home stuff has tricked people into thinking that you don’t actually need to work hard. Rude awakening inbound!
He was answering a question from a Twitter user who asked the tech guru to expound on rampant recession fears in the US.
“It has been raining money on fools for too long,” tweeted the billionaire in response.
He also suggested that the COVID-19 pandemic with its "stay-at-home” protocols had “tricked” people into thinking there was no need for them to work hard, adding they were about to come in for a "rude awakening".
Based on past experience, about 12 to 18 months. Companies that are inherently negative cash flow (ie value destroyers) need to die, so that they stop consuming resources.
— Elon Musk (@elonmusk) May 27, 2022
It would appear he was referring to the fact that both individuals and corporations in the US received stimulus payments in three rounds of COVID-19 relief.
According to the South African-born entrepreneur, who clinched a deal to buy Twitter at the end of April for an estimated $44Bln, “companies that are… value destroyers need to die, so that they stop consuming resources.”
When another Twitter user asked how long the recession would last, Musk responded by saying that "based on past experience, about 12 to 18 months".
Earlier, during a live-streamed appearance at the All-In Summit in Miami Beach, Musk had similarly suggested that the US economy was “probably” in a recession.
“These things pass and then there will be boom times again,” Musk stated, adding: “It’ll probably be tough-going for, I don’t know, a year, maybe 12 to 18 months.”
The world's richest man, who at some point flirted with the idea of starting his own social media platform, opted to buy Twitter in April instead. Initially, Musk planned to borrow $25.5Bln from the banks and pay another $21Bln of his own money to cover the costs of the buyout.
On 13 May, he announced the suspension of the transaction because the need arose to check how many fake accounts the social network had.
Musk, who stated he wanted to revolutionise Twitter’s role in public debate, as "free speech is the bedrock of a functioning democracy, and Twitter is the digital town square," announced that he would not buy the micro-blogging site until the number of bots was less than 5 percent.
Musk’s most recent remarks come as BlackRock, the world's largest asset manager, warned that the US Federal Reserve's move to increase interest rates to offset record inflation may trigger a recession.
"The Fed's hawkish pivot has raised the risk that markets see rates staying in restrictive territory," BlackRock said in a research note.
To counter rampant inflation, the Federal Reserve had agreed to raise interest rates by half a percentage point during the 3-4 May policy meeting, warning that further rises in June and July could be appropriate. At present, inflation is running at more than three times the central bank's 2 percent target. Nevertheless, according to Bloomberg’s monthly survey of economists, the probability there will be a recession over the next 12 months is 30 percent.
