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Jamie Dimon warns that the US bond market will “crack” under the weight of the country’s rising debt as he called on Donald Trump’s administration to put America on a more sustainable trajectory.
JPMorgan Chase’s chief executive said Friday that he warned regulators. He added:
Warnings from the head of the US largest bank regarding increased risk in the US bond market have set borrowing costs in trillions of dollars worldwide, but highlights Wall Street is increasingly uneasy about rising government debt levels. It comes as Congress is reviewing Trump’s “big and beautiful” budget bill.
Even before the introduction of the law, which was voted in the House last week and is under review in the Senate, the Congressional Budget Office predicted that U.S. debt as a share of GDP would exceed the peak of the 1940s era in the coming years.
Long-term US bonds are under pressure from financial concerns, with 30-year financial yield transactions ranging from just 4% to about 5% at the start of 2024, and this month rating agency Moody’s also robbed the US from its Triple A credit rating.
The Treasury bond market has increased from around 5tn in 2008 to 29tn today, especially as the government cut taxes while increasing spending during the coronavirus pandemic. The market is the deepest and most fluid in the world, and has long benefited from the privileges of the dollar, the world’s reserve currency.
However, as the debt load increased, demand was also hit. Foreign investors have been steadily pulled back from the Ministry of Finance market over the past decade. This has been swept down by Trump’s tariff policies.
Dimon said geopolitical tensions around the world, trade wars and rising debt levels mean that the “structural plate” of the world economy is changing.
“I don’t know if that’s going to be a crisis in six months or six years,” he said at the Reagan National Economic Forum in California, urging the government to “change the debt trajectory” and urged regulators to ease restrictions on banks to increase their ability to trade bonds. “I think we can just change and change some of these rules and regulations and make everything better, including that.”
His comments reflect the comments from President Goldman Sachs John Waldron, who described the rise in the US deficit earlier this week as “somewhat concerning” and warned that the bond market impact was a “major macro risk now.”
“As far as we can see, we think we’ll run a bigger deficit pretty clearly. And we’re going to borrow more Treasury,” said Waldron, Goldman’s deputy prime minister behind David Solomon. “The big risk is that the long-term rate continues to be backed up, the economic capital costs are rising, and the fundamental brakes on economic growth,” he told the Bernstein Conference in New York.
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According to the Independent Committee for Responsible Federal Budget, Trump’s budget bill will add at least 3.3 tons to U.S. debt by 2034 by 2034. Moody’s warned that the bill would drive the US deficit from 6.4% of GDP last year to just 9% by 2035.
Dimon also said the US should raise taxes on carried interest, a tax law provision that benefits private equity executives.
Trump has supported the idea, a Democrats’ goal, including former President Barack Obama for a long time. “We should definitely be taxed,” Dimon said. Dimon, 69, was asked if he would consider running for the office.
