Elon Musk recently shared his concerns regarding the current economic situation, stating that a crisis in the banking sector has just begun and could escalate by the end of 2023 or early 2024. He cited two major concerns: the high interest rates and the crisis in the commercial real estate sector.
Musk mentioned that the US Federal Reserve has already raised interest rates four times by 75 basis points, and is expected to increase them further by 25% to above the current inflation rate, which could lead to many families and individuals being unable to repay their mortgages. He also predicted a crisis in the commercial real estate sector due to a large number of vacant offices in big cities as many companies have opted for remote working, leaving them with large and expensive office spaces. This crisis could further exacerbate the liquidity crisis that has already affected many commercial banks, including Silicon Valley Bank and Sigma Tour.
However, it’s important to note that the current economic situation is different from the Great Depression of 1929. In 1929, the US was the world leader in several sectors, including iron, coal, and petroleum production, and the banks were overflowing with money. The situation today is marked by geopolitical tensions and inflationary pressures that require different solutions than the deflationary recession of the 1920s.
The challenge for the US Federal Reserve is to find a balance between fighting inflation and avoiding a deep and painful recession. Musk’s concerns may be valid, but we cannot predict what will happen in the future. Instead, we must focus on applying a quantitative analytical process based on data to make informed decisions and look for opportunities in the financial markets.
