Understanding Jamie Dimon's Concerns on the Rising US Debt

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Concerns are rising among major business leaders and economists regarding America's increasing debt problem.

Last week, JPMorgan CEO Jamie Dimon raised concerns about a potential crisis on the horizon due to unchecked deficit spending.

In an interview with Sky News, Dimon emphasized the importance of being cautious with borrowing money for growth. He highlighted that while borrowing can spur growth, it may not always result in positive outcomes. Dimon stressed the need for America to pay closer attention to its fiscal deficit issues, as this is not only crucial for the country but also for the global economy.

Dimon emphasized the importance of reducing the deficit, stating that it is the reason for higher inflation. He expressed hope that the US government will prioritize deficit reduction. Dimon warned that delaying action on the deficit could lead to a more challenging situation in the future. He highlighted the potential consequences of market forces if the deficit is not addressed promptly.

Ray Dalio, the founder of Bridgewater hedge fund, recently expressed concern about the US debt situation in an interview with the Financial Times.

Glenn Hubbard, an economist and former dean of Columbia Business School, also highlighted the growing issue of interest payments on the national debt during an interview with Before the Bell. He mentioned that these payments, which were once negligible, are now comparable to the country's defense spending. Hubbard emphasized that the next president will need to address this pressing issue.

“He may not be campaigning on it, but whoever he is, he’s going to have to do something about it,” he said.

So why the sudden confluence of concern?

The national debt has skyrocketed in recent years due to a combination of Trump-era tax cuts and Covid-era stimulus programs. President Joe Biden's Inflation Reduction Act has further increased spending, adding to the debt burden.

The United States government is currently spending more money than it is taking in, resulting in a budget deficit for six out of the first seven months of this fiscal year. The deficit for this fiscal year has already reached approximately $855 billion, which is over 6% of the US gross domestic product. This adds to the existing $34.6 trillion total debt that the US is currently carrying.

The US is facing a problem beyond just having a large debt and deficit. According to Jason Thomas, head of global research & investment strategy at Carlyle, the country is currently running a deficit that is nearly 7% of GDP. This is happening while the economy is at full employment and operating at its full potential, as stated in a CNN report.

Thomas explains that if the US were to enter a recession, the government would need to increase spending on stimulus programs. This would happen at the same time as tax receipts decline, potentially leading to a deficit of nine or 10% of GDP. He emphasizes that this level of deficit is completely unsustainable in the long run.

As deficits increase, the federal government needs to sell more Treasury securities. This leads to higher yields in order to attract more investors, which ultimately raises borrowing costs across financial markets and negatively impacts economic growth.

According to a recent report by my colleague Hanna Ziady, the International Monetary Fund (IMF) warned that the high and growing US government debt could potentially drive up borrowing costs globally and pose a threat to global financial stability.

The head of the Congressional Budget Office, the US Congress’s independent fiscal watchdog, recently issued a stern warning. This was followed by a blunt message stating that the United States could face a bond market crisis similar to what the United Kingdom experienced under former Prime Minister Liz Truss.

In addition to the risk of a bond market crisis, the US government also has to deal with paying interest on its increasing debt. Currently, the government spends $2.4 billion on interest payments each day, as reported by the Peterson Foundation. These payments are expected to double in the next decade as Treasuries issued during the period of near-zero interest rates mature and are replaced by bonds with higher yields.

82% of voters are expressing a desire for the president and Congress to focus more on dealing with the debt. Additionally, 80% of voters have seen their level of concern about the issue rise in recent years. However, government officials are hesitant to broach the subject of tax hikes or budget cuts during an election year, according to Hubbard.

Thomas also noted that the debt issue does not seem to be a major talking point in the current campaign. This leads him to believe that it may not receive much attention or action moving forward.

If this scenario plays out, the 10-year US Treasury yield might reach 5.5% before facing significant political pressure. Currently, it stands at 4.4%. This could result in mortgage rates climbing to 8%.

Additional reporting by Samantha Delouya.

Trump Media & Technology Group reported a loss of over $300 million in the first quarter, with minimal revenue generated. The owner of Truth Social shared this information in a press release on Monday.

My colleague Matt Egan reports that the results will lead to more questions about the multi-billion dollar valuation of the recently public company, mostly owned by former President Donald Trump.

During the first three months of the year, Trump Media (DJT) experienced a loss of $327.6 million, a significant increase from the $210,300 loss reported a year ago.

Trump Media emphasized in a press release that they are currently in the early stages of development and are prioritizing long-term product growth over short-term revenue. They mentioned that their advertising business is still in its infancy but are optimistic that new products such as streaming services will drive future success.

The company attributed their losses to non-cash expenses related to converting promissory notes and clearing past liabilities.

"After a long process, we have successfully completed our merger and taken care of most of the expenses related to it. This has left the Company in a strong financial position, with the support of many retail shareholders who share our goal of providing a platform for free speech in the face of Big Tech censorship," stated Devin Nunes, CEO of Trump Media.

Trump Media recently announced an operating loss of $12.1 million, largely due to expenses linked to the merger with a blank-check company earlier this year.

The company's revenue for the quarter was only $770,500, making it the second consecutive quarter with revenue below $1 million.

Trump Media reassured that they have enough cash to support the business for the foreseeable future. As of the end of March, the company had a cash balance of $274 million, thanks to their recent public listing deal.

FDIC Chair Martin Gruenberg will resign after a harsh investigation uncovered a toxic work environment. Martin Gruenberg, who leads the Federal Deposit Insurance Corporation, will be stepping down in light of an independent investigation that revealed widespread issues of sexual harassment, discrimination, and bullying within the agency responsible for overseeing the banking industry, as reported by Elisabeth Buchwald.

Gruenberg stated on Monday that he is ready to step down from his duties once a successor is confirmed. He mentioned that he will continue to carry out his responsibilities as Chairman of the FDIC, focusing on improving the workplace culture.

The decision to resign was made following Sen. Sherrod Brown's call for new leadership at the FDIC. Gruenberg has been a part of the FDIC board for almost twenty years, with nearly a decade spent as the agency's chair.

The FDIC commissioned a report by law firm Cleary Gottlieb Steen & Hamilton, which led to Gruenberg's resignation. The report confirmed the findings of a previous investigation by the Wall Street Journal, which highlighted a problematic culture within the organization. Based on interviews with over 500 employees, the report did not solely blame Gruenberg for the issues.

However, the report did outline instances where Gruenberg reacted negatively towards his subordinates, especially when receiving bad news or differing opinions. This behavior led to employees hesitating to share news that they believed would upset him. The report also raised concerns that Gruenberg's temperament could hinder his ability to build trust and lead meaningful cultural change.

Editor's P/S:

Paragraph 1:

The article highlights a growing concern among experts about America's mounting debt problem, which has surged due to tax cuts, stimulus programs, and increased spending. This debt, currently standing at $34.6 trillion, is not only a domestic issue but also poses a threat to global financial stability. As deficits rise, the federal government is forced to borrow more, leading to higher yields and borrowing costs that negatively impact economic growth. The situation is further exacerbated by the need to pay interest on the increasing debt, which is expected to double in the next decade.

Paragraph 2:

Despite the urgency of the situation, the debt issue is not being adequately addressed by government officials, who are hesitant to discuss tax hikes or budget cuts during an election year. Experts warn that if this trend continues, the US could face a bond market crisis or a deficit that reaches unsustainable levels, especially in the event of a recession. The article also notes that a majority of voters are concerned about the debt problem but that it is not receiving sufficient attention in the current political campaign, which may hinder meaningful action in the future.