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.”
Understood................
You can do this, you obviously have the intelligence. Please write a 1 month, 1 year, and 5 year plan that leads in the direction you want to go and get started today! It doesn’t matter where you start, as long as you start. Until you start nothing can happen except more stagnation. I’ve been at war with the govt since Carter and beating it requires planning and action. Leave the ‘woe is me’ crowd to their wailing, you’ve got better things to do.
For those who scream about “foreign aid” “Israel” and “Ukraine” let me remind the keyboard populists that foreign aid is but 1% of the federal budget.
We think having 2 trillion dollar deficits a year is insane, but we will hit a 5 trillion dollar deficit before we see a 1 trillion deficit. There's no going back. No politician has the willingness to take the pain it will take to make cuts.
My only hope is that I can protect my savings before it all comes tumbling down.
What happened when Liz Truss tried to cut taxes during a period of high deficit in the UK is what should happen here: bond vigilantes dump the debt sending up yields and the government has to make changes (in that case tossing the odious Liz Truss). Until we lose the “reserve currency” status that is unlikely to happen.
“Dimon is a snake. He’s also a liberal”
He’s also a very rich man who probably realizes if the politicians continue to do nothing, his money will eventually be worthless.
“No one is looking for solutions, most just look for excuses and who to blame.”
We already know all the possible solutions to a debt crisis. But politicians refuse to implement any of them, except to try to inflate the debt away, which is at best the second most horrible option they could pick.
“foreign aid is but 1% of the federal budget.”
It is a bit more complicated than that.
Much of the defense budget is in fact defending other countries who are not paying for most of their own defense—as just one example.
In addition there are dozens of loan programs out there.
That also does not include the cost of the illegal invaders which is de facto foreign aid as well.
Economic issues are accelerating beyond the norm, buckle up.
I wonder if Jamie still hates bitcoin. Whatever his opinion, I suspect he understands some of the point of it more now.
Raise taxes or make more by printing?
Re: government. We need to cut spending. But the citizens have no more stomach for that than the politicians. Growth will make more, of course, but the hill is too steep, IMHO.
I suppose. But as I've thought the issue through, I've come to the conclusion that the most moral thing to be done would be to default on the debt and stiff the creditors for that $34 trillion.
As I see it, it's a choice between stiffing the creditors - who for years have known and and exactly what is happening and are still enabling it, like a bartender plying the town drunk with alcohol right before he drives home past the grade school as it lets out. In this analogy the grade school are the generations yet unborn who will be saddled with a debt they are 100% innocent of.
The USD has been weaponized for a long time to rob productive and responsible people and pay off political elites and people on the dole with effectively purchased votes. The holders of government debt have been supporting and enabling that. So I see them as unpatriotic in the extreme, and stiffing them is preferable to paying them off and putting our children and grandchildren into debt slavery.
One could say this would destroy faith in government credit in the future. Fine. That's a feature, not a bug, in my book. Make the politicians fund their programs with concurrent taxes so voters can feel the cost without kicking the can down the road.
If the American Leadership Elite© hadn’t been asleep at the wheel for a couple of generations there would be no need for MAGA.
EVERY Roman general knew that if he took the nations treasury, armory and youth off to war....he’d better bring home the loot-something that has escaped the “American Leadership Elite©”
Basic fundamental rule of successful governing...from thousands of years ago...
Like the weatherman, Dimon knows the problem that is coming, he just doesn't know when it will arrive.
I see nothing particularly political in stating the obvious.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.