Jamie Dimon is one of America’s most prominent and successful CEOs; he built JP Morgan Chase into a $4 trillion juggernaut, so it’s fair to say that he understands global finance in a way that most people– and most politicians– do not.
On Friday, Dimon sat down for a 30+ minute live interview at the Reagan National Economic Forum– named after the 40th President who constantly preached cost-cuts and responsible spending.
Dimon opened his remarks talking about Reagan, who sounded the alarm about the national debt back in the early 1980s when America’s debt to GDP ratio was just 35%. Today it’s 122%. And with each passing year the number becomes even worse.
Dimon warned the audience that “tectonic plates are shifting,” referring to America’s status as the dominant superpower in the world– which is rapidly slipping.
“The amount of mismanagement is extraordinary,” he said. America has added $10 trillion to the national debt in just five years… and for what benefit? Is the country $10 trillion better off? Did any of that $10 trillion improve the lives of anyone who isn’t in Washington DC?
But all of that debt is quickly reaching a point where it will become nearly impossible to service. Just covering the interest payments on the national debt now costs taxpayers more than $1 trillion per year. And if the current trend on rates and deficit spending hold, it will reach $2 trillion per year by 2028.
(He joked that the government spending is worse than the proverbial “drunken sailor,” because at least a drunken sailor spends his own money.)
As a result of this insane level of debt and spending, Dimon warned, “you are going to see a crack in the bond market. It’s going to happen.”
What he means is that US government bonds have long been considered the global “risk-free” asset… and whenever the Treasury Department would sell more bonds, investors would dutifully buy as much debt as the government was selling.
But that’s no longer the case. “Bond vigilantes are back”, Dimon agreed, and investors are now shunning US government securities.
This is going to cause a major problem for the United States; running such huge deficits year after year means the Treasury Department NEEDS lenders, it NEEDS investors to buy US government bonds.
If investors pull back, the natural consequence will be MUCH higher Treasury yields and interest rates, resulting in a full-blown fiscal crisis in the United States… including major inflation.
“The future- what I see– is inflationary,” Dimon predicted. “I don’t know if the crisis will be in six months or six years, [but] I’m hoping that we change. . . the trajectory of the debt” before that crisis occurs.
It was a pretty blunt warning to a room full of policymakers– which included several officials from the Federal Reserve and the Trump administration.
Dimon is absolutely right, of course. Peter and I have been talking about this same debt crisis for years, and it’s only become worse.
For someone of Dimon’s gravitas to sound the alarm bells is a big deal– and he echos Warren Buffett’s most recent annual letter which similarly admonishes the federal government to get its fiscal act together.
Sadly, it doesn’t appear that the government is listening.
On Sunday, Treasury Secretary Scott Bessent dismissed Dimon’s warnings and claimed, rather bizarrely, that “the deficit this year is going to be lower than the deficit last year, and in two years it will be lower again.”
That statement is just patently false.
In Fiscal Year 2024, the $1.8 trillion deficit constituted 6.4% of GDP. This year’s deficit hit $1.3 trillion just in the first SIX MONTHS! Let’s be kind and assume that the annual deficit this year will be ‘only’ $2.0 trillion, or 6.6% of GDP — that would amount to a higher deficit on both a nominal and relative basis.
Plus, the “One Big Beautiful Bill” will add quite a bit more to the deficit. Don’t get me wrong– tax cuts are great. But spending cuts are even more critical right now… and this bill is extremely deficient in that department.
Senator Rand Paul confirmed this later and said (of Bessent’s comments), “the math doesn’t really add up” and that the administration’s current spending plan is to have a total deficit of “five trillion over [the next] two years”.
Any way you slice it; the deficit is increasing… not decreasing.
Elon Musk lamented this as well, saying that he was “disappointed” by how the spending/tax bill increases the deficit.
There do seem to be a handful of Senators willing to take a stand and demand bigger spending cuts. We’ll see how that pans out. But it’s clear that the majority of politicians don’t have a care in the world about the deficit.
They almost have a sense of entitlement in assuming that investors from around the world will continue buying US government bonds no matter how precarious America’s fiscal situation becomes.
Jamie Dimon closed his remarks talking companies in the private sector who had a similar sense of entitlement– Kmart, Sears, Blackberry, Nokia, etc. all had tremendous “arrogance, greed, complacency, bureaucracy.”
They all assumed their greatness and success would last forever. But that’s a horrible assumption. Greatness and success have to be earned every day, year after year.
The US government has been doing the opposite for far too long; rather than earning success and greatness, they find unique ways to cripple themselves and make things worse.
Dimon rightfully pointed out that the ship can still be turned around. And it can. But it certainly makes sense to have a Plan B in case they don’t. These risks are very real, and it’s sensible to take them seriously.
