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Elon Musk Says 'Bankruptcies Need to Happen' as He Predicts Recession

Newsweek logo Newsweek 5/27/2022 Darragh Roche
CEO, and chief engineer at SpaceX, Elon Musk, arrives for the 2022 Met Gala at the Metropolitan Museum of Art on May 2, 2022, in New York. Musk has suggested there may be an economic recession. © ANGELA WEISS / AFP/Getty Images CEO, and chief engineer at SpaceX, Elon Musk, arrives for the 2022 Met Gala at the Metropolitan Museum of Art on May 2, 2022, in New York. Musk has suggested there may be an economic recession.

Billionaire Elon Musk said "bankruptcies need to happen" as he predicted there will be a short recession in the U.S. that will ultimately be a good thing.

The Tesla CEO was responding to a question on Twitter from a user who asked him if he still believed there would be a recession following remarks he'd made earlier this month.

"Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen," Musk wrote.

He also appeared to take aim at those who have been working from home due to the pandemic, adding: "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!"

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Another Twitter user asked Musk how long he believed a potential recession would last.

"Based on past experience, about 12 to 18 months," Musk replied. "Companies that are inherently negative cash flow (ie value destroyers) need to die, so that they stop consuming resources."

This isn't the first time in recent weeks that Musk has predicted a possible recession and argued it could be a positive thing. Speaking at the All-In Summit in Miami Beach on May 16, Musk said the U.S. was "probably" in a recession.

"Recessions are not necessarily a bad thing," Musk said at the time. "I've been through a few of them. And what tends to happen is if you have a boom that goes on too long, you get a misallocation of capital. It starts raining money on fools, basically."

There have been some concerns about a recession as the Federal Reserve has moved to increase interest rates in an effort to tackle inflation, which is at a near 40-year high.

German international investment bank Deutsche Bank warned last month that the U.S is heading for "a major recession," citing the Fed's fight against inflation, while BlackRock, the world's largest asset manager, said this week that if the Fed raises interest rates too much, they "risk triggering a recession."

However, Bloomberg's monthly survey of economists in May found that the odds of the U.S. entering a recession this year stood at just 30 percent. That's a slight increase from 27.5 percent in April.

UBS and Goldman Sachs have said they don't believe a recession is inevitable, according to a CNN report last month.

Musk, the world's richest man, is in the process of acquiring Twitter for $44 billion. He has recently clashed with the social media company's CEO over the issue of fake accounts, with some suggesting Musk is angling for a lower price.

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