Elon Musk, Tesla CEO, has taken to Twitter to share his thoughts on the impending economic crisis, caused by the response to the coronavirus pandemic. In a series of tweets, Musk claimed that a US recession would “actually be a good thing”, insisting the nation needed a “rude awakening” after rapidly increasing national debt.
When asked, “Do you still think we’re approaching a recession” Elon responded with this:
“Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen.
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!”
Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen.
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!
— Elon Musk (@elonmusk) May 27, 2022
Musk added the following: “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.”
What signs are we seeing of a recession in 2022
A recession, in general terms, is defined as two or more negative quarters of economic growth in a row, most commonly measured by real gross domestic product (GDP). Many factors can and do contribute to this negative growth.
Supply chain issues are one of those factors.
The highest inflation in 40 years is putting real pressure on households and especially the poorest in America. Gas and food are being affected pretty dramatically right now as well as rent and housing.
Another big warning sign is the negative yield curve we’ve seen which signals that confidence in the economy is waning.
There’s also our massive debt. The U.S. has the world’s largest economy, but it also has the world’s largest debt load. The national debt is now more than $27 trillion and growing. The government is borrowing about $900 billion a year just to keep up with interest payments on that debt.
Rising interest rates are putting even more pressure on that debt.
The stock market rose for 5 straight days to end this week. It was the best week since November 2020 but 2022 has been a tough one on investors up to this point. Tech stocks have been hit hardest this year.
Cryptocurrency has also taken a huge hit this year. Bitcoin is at $28,998.50 (down 18.70% the past year). Ethereum is at $1,790.87 (down 26.07% the past year) at the time of this writing.
Why would a recession be a good thing?
In some sense, the worst part of a recession can be the doom and gloom of it all. At least for many people. Assuming you remain employed, you will probably be able to go about normal life with few interruptions.
However, recessions also have some benefits. They help to cleanse the economy of inefficient businesses and allows for new businesses to enter the market. In fact, the strongest businesses are often started during recessions. These businesses have identified an opportunity in the market that others have missed. They are also forced to build their business on sound economic principles.
Additionally, recessions can help to reduce inflationary pressure and allow for interest rates to reset at more sustainable levels.
Recessions usually create a deflationary scenario where stocks and other assets such as housing are more affordable.
Also, recessions do not impact all businesses the same. Some businesses thrive in recessions, while others might struggle. Some of the industries that thrive in recessions include:
- Auto mechanics
- Healthcare providers
- Financial advisors
- Discount retailers
- Home improvement and DIY
- Grocery stores
- Recycling
- Pawn shops
In short, recessions are an essential part of the economy, and though they may be painful in the short-term, they ultimately help to ensure a healthy economy in the long-term.
How should I prepare for a recession?
There are a few things you can do to prepare for a recession:
- Build up an emergency fund: This will help you cover unexpected expenses during a time of unemployment or underemployment.
- Pay down debt: This will reduce your monthly expenses and free up more cash flow.
- Lower your expenses: Find ways to cut your spending so you can save more money.
- Invest in yourself: Use this time to learn new skills or improve your existing ones.
- Start a side hustle: Working from home is easier than ever, especially with things like YouTube and Blogs.
Additionally, if you have excess money, many stocks and other assets will be on “sale”. Recessions can make a savvy investor quite wealthy if they know what to look for.
What do you think? Are you prepared for a recession? Do you think a recession is coming? Let us know in the comments below.