Impending bond crisis: Jamie Dimon warns of fiscal reckoning
Jamie Dimon, the CEO of JPMorgan Chase, has warned of an impending crisis in the American bond market. He believes that if the United States fails to address its fiscal issues, the repercussions could be severe for both financial markets and the global status of the dollar.
US markets are reacting apprehensively to the prospect of further increases in the budget deficit. As reported in Saturday's "Wall Street Journal", changes proposed by Republicans to the tax system could inflate the deficit by somewhere between 2.7 trillion (2 trillion pounds) and 5.2 trillion dollars (3,86 trillion pounds) over the next decade, according to various estimations. The national debt of the United States has already surpassed 36 trillion dollars (27 trillion pounds).
USA: "We will see a crack in the market"
Jamie Dimon, CEO of JPMorgan Chase, predicted during the Reagan National Economic Forum in California that the bond market will experience a disruption, stating that such a development is inevitable. Concerns among investors led to a sell-off of 10-year treasury bonds in May. Their yield increased by nearly 25 basis points, reaching 4.418 percent.
The Moody’s agency has removed the USA's highest credit rating, AAA, citing unchecked debt growth. Further anxiety was sparked by the weak demand for bonds during the auction on 21 May.
The US administration has announced plans to ease capital requirements to facilitate banks' purchase of treasury bonds. However, Dimon considers the measure insufficient. He warned that if the current course remains unchanged, a major crisis is inevitable. He said he frequently cautions regulators that such an event is bound to occur and will trigger panic—though he’s uncertain whether it will unfold in six months or six years.
"Are we gonna be the reserve currency? No. You know, if we are not the preeminent military and the preeminent economy in 40 years, we will not be the reserve currency," emphasised Jamie Dimon, as quoted by the "WSJ".
The head of JPMorgan is renowned for his warnings against excessive complacency among investors. In May, he criticised the markets for ignoring the long-term effects of tariffs imposed by Donald Trump during the trade war with China. Dimon also cautions that excessive US debt and loss of economic and military leadership could jeopardise the dollar's role as the global reserve currency.
