Elon Musk warns that a major Fed rate hike could cause a major economic crisis.
Tesla CEO Elon Musk has warned that a major rate hike by the Federal Reserve could cause deflation in the US economy. Musk’s warning follows an analysis by Cathie Wood, CEO of Ark Invest, who warned that “leading inflation indicators like gold and copper signal the risk of deflation.”
A major Fed rate hike risks deflation
— Elon Musk (@elonmusk) September 9, 2022
Tesla and Spacex CEO Elon Musk tweeted last Friday that “Significant Fed rate hike risks causing deflation.” His tweet got a lot of attention.
Is Elon Musk talking nonsense?
Well probably not!
On the contrary !
It is a problem of the nature of inflation.
The current inflation is not fundamentally of a monetary nature but linked above all to the explosion of energy prices and the disruptions linked to the zero Covid policies in China.
This inflation, through high energy prices, drains considerable sums from the economy and from the purchasing power of people’s households. This inflation in energy prices hides deflation and the drop in demand for other goods, which become adjustment variables. The rate hike will act as a second drain on the economy and precipitate things into recessions.
Inflation + recession This can obviously lead to deflation if central banks and governments apply the brakes too much.
They will say in 10 years that they have done too much and will apologize, but in the meantime they will crush the economy and prefer deflation to inflation after having done everything to trigger inflation by wanting to prevent the natural cycle and deflationary in which we were.
Central banks are currently amplifying the crisis.
They fix nothing, they make everything worse.
And the worst part is that they know it.
It is therefore voluntary.
Charles SANNAT
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