Why does Billionaire Palihapitiya See US Economy in Recession?

In an episode of the All-In Podcast, billionaire Palihapitiya discusses why over half of Americans believe the US economy is in a recession despite a 1.6% GDP rise last quarter. He suggests that the negative sentiment may be due to the components used to measure the GDP, which may give an inaccurate sense of the state of the US economy. The GDP is composed of four main components: people’s spending, companies and governments’ spending, and exports to other countries.

Palihapitiya explains that consumers and companies tend to save and scrimp when interest rates are high, while companies limit their investments due to expensive borrowing costs. When interest rates are low, consumers and companies are incentivized to spend, while the government continues to spend regardless of prevailing rates.

The billionaire believes that the US does a poor job of measuring all these dynamics together. He trusts survey data more than the GDP report, as it more accurately captures this dynamic. The average American is not feeling that they have less money, and if the GDP measurement is not revisited from first principles, the economy may be in a quasi-synthetic recession.

Palihapitiya suggests that the economy is already in a recession, but GDP numbers do not reflect that state due to sustained government spending.