Kevin O’Leary’s Warning of an Impending Financial Crisis
In an interview with Fox News, Kevin O’Leary, also known as Mr. Wonderful from Shark Tank and chairman of O’Leary Ventures, voiced his concerns about a looming financial crisis. O’Leary emphasized that this crisis is affecting companies with five to 500 employees, which make up a significant portion of our economy.
If you belong to the S&P 500, you probably have no difficulty obtaining financing for your business. However, small business owners are facing challenges as the cost of capital has skyrocketed. Regional banks are cutting off lending opportunities, leaving small businesses struggling to secure funding. O’Leary predicts that many people will express their distress over this issue in the coming months.
To combat inflation, the Federal Reserve has raised interest rates from near-zero to about 5.5%, the highest level since 2001. Federal Reserve Chair Jerome Powell has indicated that more rate hikes may be on the horizon if necessary.
The Decreasing Count of Regional Banks and Deposit Concerns
O’Leary warns that the number of regional banks is expected to decline from approximately 4,100 to 2,000 in the next three years. This decline raises concerns among individuals who deposit their money in banks. O’Leary cautions that during this period, people may feel anxious about placing their funds in banks since the guarantee for deposits is only up to $250,000 per account.
This year has already seen several regional bank failures in the U.S. Heartland Tri-State Bank collapsed in July, while Silicon Valley Bank, Signature Bank, and First Republic Bank faced similar fates earlier in the year. Additionally, Silvergate Bank announced voluntary liquidation. O’Leary previously warned in July that more regional banks in the U.S. will meet the same fate as the Federal Reserve continues to raise interest rates.
O’Leary’s Concerns About Government Policies and Small Businesses
O’Leary raises particular concerns about the government’s approach to funding. He points out that money is being directed towards large corporations through acts like the CHIPS and Science Act and the Inflation Reduction Act. However, small businesses are not receiving the same level of support. O’Leary finds it unfair that the majority of funding is going to behemoth companies, despite the fact that small businesses make up 60% of America and provide 60% of its jobs. He believes this lack of support is a result of the Federal Reserve’s rapid rate hikes, which have reached 5.5% in just a few months.
O’Leary highlights the inflationary consequences of writing $2 trillion for large corporations, while neglecting smaller businesses like his own. He stresses that he communicates with CEOs of family-owned small companies across America on a daily basis, and they are also dissatisfied with the current situation.
Hot Take: Prepare for an Impending Financial Crisis
Kevin O’Leary’s warning should not be taken lightly. The potential crisis he foresees could have a significant impact on the economy, particularly on small businesses. With the increasing cost of capital and a decline in regional banks, securing funding for small businesses may become increasingly challenging. Individuals will likely feel apprehensive about depositing money in banks during this period of uncertainty. Additionally, the unequal distribution of government funds towards large corporations further exacerbates the disparity between small and big businesses. It is crucial to remain vigilant and proactive in managing the potential risks associated with this financial crisis.
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