Posted on 02/01/2024 7:22:07 AM PST by Red Badger
JPMorgan Chase CEO Jamie Dimon said that out-of-control spending in Washington that keeps adding to the growing pile of U.S. government debt threatens to trigger a reckoning in the form of a market “rebellion.”
Mr. Dimon made the remarks while speaking on a panel at the Bipartisan Policy Center in Washington last week alongside former House Speaker Paul Ryan (R-Wis.), a self-proclaimed deficit hawk.
At one point in the discussion, Mr. Ryan said that the “most predictable crisis we’ve ever had” is the looming debt spiral as the U.S. government faces increasing levels of indebtedness, threatening America’s ability to pay it back—and risking a default.
Mr. Dimon, who agreed with Mr. Ryan’s take, was asked what it means for the U.S. economy if the federal government fails to tackle the issue of massive government spending.
He recalled that in the early 1980s, the debt was around 35 percent of gross domestic product (GDP). Today, the debt-to-GDP ratio is above 100 percent, and Mr. Dimon said it’s projected to reach 130 percent by 2035.
“It’s a hockey stick,” Mr. Dimon said of his prediction for the future path of the debt-to-GDP ratio, applying a term often used to describe a chart pattern showing plotted values moving more or less sideways—before they suddenly spike and vault skyward.
‘There Will Be a Rebellion’
While the United States has not yet suffered the “hockey stick” surge, Mr. Dimon warned that “when it starts, markets around the world—by the way, because foreigners own $7 trillion of U.S. government debt—there will be a rebellion.”
The bank chief added that a “rebellion”-type reckoning—which could involve a sudden deepening of the debt crisis as investors lose confidence in the government’s ability to service its debts and sell off U.S. Treasurys—would be “the worst possible way to do it.”
The point at which America’s public debt becomes unsustainable is fast approaching, Mr. Dimon warned.
“It is a cliff. We see the cliff. It’s about 10 years out. We’re going 60 miles an hour,” he said.
Analysts at the University of Pennsylvania estimate that when the debt-to-GDP ratio hits around 200 percent, it will hit the point of no return—when no amount of future tax increases or spending cuts could prevent the government from defaulting on its debt.
“Unlike technical defaults where payments are merely delayed, this default would be much larger and would reverberate across the U.S. and world economies,” they explained.
Under a “best case” scenario, the University of Pennsylvania analysts estimate that the United States has around 20 years to take corrective action before the growing debt spiral spins out of control.
However, a “worst case” scenario is possible, too. This would be prompted in part by forward-looking markets losing confidence in the U.S. government and demanding an even higher return on U.S. government securities if they see debt increasing well into the future.
The higher borrowing rates that would ensue would, in turn, make the debt snowball or grow even faster. The analysts warn that, under a worst-case scenario, the U.S. debt-to-GDP ratio could rocket to 204 percent by 2040.
By contrast, the Congressional Budget Office (CBO) estimates in its base case that the debt-to-GDP ratio will reach around 134 percent by 2040 and 181 percent by 2053.
Debt ‘Death Spiral’
Echoing Mr. Dimon’s warning of a fast-approaching reckoning for America’s ballooning public debt, author Nassim Taleb said he sees the United States heading for a debt “death spiral.”
Unless politicians in Washington rein in spending, debt troubles will snowball, warned the author of the bestselling book “The Black Swan,” which deals with the extreme impact of rare events.
Mr. Taleb, who correctly predicted the 2008 financial crash, issued his latest warning on Jan. 29 while speaking at an event for Universa Investments, the hedge fund he advises.
“So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system, eventually you’re going to have a debt spiral,” Mr. Taleb said at the event.
“And a debt spiral is like a death spiral,” he added ominously. While he didn’t elaborate on how he thinks this could play out, he expressed pessimism that politicians would smarten up.
“We need something to come in from the outside, or maybe some kind of miracle,” he added.
Mr. Dimon’s warning of a “rebellion” and Mr. Taleb’s remarks about a “death spiral” comes as the U.S. government added around $2.65 trillion to America’s national debt in 2023, topping a total of $34 trillion for the first time ever.
This is “truly a depressing ‘achievement,’” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB).
“Though our level of debt is dangerous for both our economy and for national security, America just cannot stop borrowing,” she said in a statement. “There is not a single economic reason to add to the debt at the rate we are, but sadly, our political leaders are unwilling to make the changes we need to turn the fiscal situation around.”
We have no leaders in this country. This is issue number one and NO ONE is talking about it or taking action.
Dimon is a snake. He’s also a liberal. I’m not sure what his agenda is when he bashes Democrat policies.
Soda went up 2 bucks here this week. $7.98 a 12 pack. I guess it’s Joe Chimp’s “boomin’ economy.”
Foreign governments might US debt be backed by percentages of US domestic tax revenue or its equivalent.
“… alongside former House Speaker Paul Ryan”
He didn’t do himself any favors there.
I’m beginning to believe that is what they want, for many reasons including the election.
You are emblematic of the problem. What if anything is he saying that is inaccurate? Our politics are only about attack the messenger. No one wants to fix the problem. At least he’s talking about it.
“We have no leaders in this country. This is issue number one and NO ONE is talking about it or taking action.”
American politicians are self serving scumbags. However, the politicians would react if the public demanded action. The public is informed and told what to think by the media. The media is on the side of the Dems, so they rabbit hole this stuff.
Number one to blame in this mess is the media. They are evil.
> This is issue number one and NO ONE is talking about it or taking action. <
Sen. Rand Paul talks about the deficit. But that’s about it. Even Trump doesn’t seem to care. Trump did not veto a single major spending bill while he was president.
So it sure looks like we’re in deep trouble, no matter who wins in November.
“ This is issue number one and NO ONE is talking about it or taking action.”
For our political elites, the carcass of the Golden Goose still has some good parts left to eat.
“He stepped to the window and pointed to the skyscrapers of the city. He said that we had to extinguish the lights of the world, and when we would see the lights of New York go out, we would know that our job was done.”
― Ayn Rand, Atlas Shrugged
The debt and out of control government spending is our number one risk right now. At least Ryan is talking about it. What is Trump doing? And what did he do about it while POTUS? Answer... nothing.
I never know what to think about Dimon, but I generally assume Taleb knows what he’s talking about.
“At least he’s talking about it.”
I suppose he deserves credit for that. If someone has proven to be not worthy of trust, it’s hard to take note, even if that person is telling you grass is green.
So, while Dimon is pointing out a valid, huge concern, I look for his motive.
There will be adverse consequences when nations and people are cheated out of the value of $34 trillion.
Yet here at the center of the cult of Trump, what did the Oracle do about the debt and deficit while in office? Zippo. He was all talk.
Re: 8 - Agree 100%
Because Dimon was wrong on some things in the past, he is wrong on ALL things in the future.
That sort of ignorant thinking is s sign of the inability to discern.
“I look for his motive”
He doesn’t want to be a Zimbabwe-style trillionaire.
Motive? The country is f**king broke! We’re heading towards a cliff, and we have a prominent public figure shouting about it. And whats you’re response? “gee, i wonder what his motive is?” Pull your head out of your ass.
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