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.”
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Meanwhile, we have a govt that can’t even write a budget and live within it for 12 months. It’s a good time to be old. We lived in a golden age that won’t be seen again for a long time.
I think it more likely that the US will inflate its way out
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That’s exactly what will happen. The Fed could simply buy 100% of all Treasuries if it wanted to do so.
He’s donated to both sides. He has some liberal leanings, but I see him as moderate, no that it matters. He’s right about the debt.
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Reading these comments has gotten like reading the liberals that hang around Microsoft Money. No one is looking for solutions, most just look for excuses and who to blame.
My old real estate broker always had the answer when I was young and trying to figure things out: “There’s only one problem, and it doesn’t change until YOU change it because no one else can change it. You don’t make enough money.”
He was right. So I figured out to make more money and everything else fell right into place.
Not long ago Rand Paul replayed the address of Davey Crockett about charity from the treasury. It is not a Constitutional action. They have made providing for the public welfare cover a lot of territory and not correctly.
Why wouldn't anyone expect rape as a way of life for a bunch of third world animals? No skills and no money? Bring them in. Every place I have worked over seas I had to provide a resume, demonstrate need for my job, prove I had a sponsor who would take care of my debts if I failed and provide support for me if needed. Most places I had to also have a ticket back home. We do nothing of the sort here. They have all been labeled refugees from something.
We can complain all we want to, so far. For all the good it does we may as well not. Something more stern and consequential is needed.
We’re already over the cliff, just waiting for the crash.
“We’re already over the cliff, just waiting for the crash.”
Good, been through each one for the last 50 years. The crash is when all the easy money gets made. I’m already watching my target area.
People can’t afford cars and houses.
The TWO major things that drive an economy.
Biden is a fool....................
If the US loses reserve currency status over our debt your “easy money” scenario might not be so rosie.
The economy is growing at 3.3%. Consumer spending and sentiment is up. Cash in banks is high. I’ve watched this cycle for 50 years, what’s happening now is what always happens.
The group people who never prosper are the ones worse off than ever now and there are more of them these days. There are also more relatively wealthy people than ever. It’s all about knowledge, and that is in short supply because it isn’t taught, you have to learn it on your own.
The split between haves and have nots is growing, the middle class is shrinking as people leave it in both directions.
That is the stuff that revolutions are made of................
A dance to the tune of economic decline
Is when you do the bottom line
Nagging questions always remain
Why did it happen and who was to blame?
-Big Audio Dynamite
Dammit, I misplaced my /sarcasm tag!
Another trope I’ve heard for 50 years. Don’t leave out the Collapse of all Collapses, ending with all the preppers ruling the world with their spam and little piles of Gold and Silver.
What this really is, is the thing that Booms are made from. The next one starts late this year. Will you be ready to take advantage?
I’m too old to ‘take advantage’. Any investments at my age would be risk averse types.............
The American Dream has been stolen from you.
The risk inherent in not taking risks is the biggest risk of all, FRiend.
“The American Dream has been stolen from you.”
A higher percentage of people are living the dream right now than ever. Please stop being media/govt victim. Beaten down and having given up is exactly where they want you.
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