Jamie Dimon, CEO of JP Morgan Chase, says he is opposed to further investing his personal wealth in long-term government bonds because the US’s $39 trillion national debt could lead to a bond market crisis.
Dimon has repeatedly pushed policymakers to take action on the debt – and they have failed him time and time again.
During an appearance on the Master Investor podcast, Dimon was asked if he would currently be a buyer of long-dated Treasury bonds. “Personally, no,” he replied. “I know the inflation numbers were good yesterday… the thing about the numbers, you deal with these numbers, I mean you really deal with them and I wouldn’t put too much faith in them.”
He continued: “I wouldn’t be a buyer, and part of that is interest rates… I mean, even if inflation was 2%, the 10-year would probably have to be at 4.5% to 4%, and the short-term rate should be at 3.25% to 3.5% – and today they’re almost there.”
Dimon talks about the headwinds that will impact longer-end Treasury yields: inflation expectations and government debt.
Long-term government bonds – 10-, 20- or 30-year notes – act as a temperature control on the economic outlook. The yields (or yields) on longer-term government bonds not only fuel inflation expectations, but also provide lenders with benchmark interest rates for their loans: the low-risk asset of government bonds compared to the interest repayments that consumers pay.
Therefore, these returns are reflected in the interest rates offered to borrowers in other parts of the economy – for example, on homes, cars and credit cards.
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Fear of crisis
Of course, the bond market is based on the belief that the government will always be able to pay off its debts – a pretty solid bet given the power of the US economy and the central bank’s ability to influence the value of debt through its money supply.
But as the Treasury piles up debt at a rapid pace — now totaling more than $39 trillion and paying interest at $24 billion a week — economists and private market experts alike worry that lenders will eventually charge higher interest rates to reflect the risk associated with financing.
The US currently has a debt-to-GDP ratio of around 120%, Europe is around 90% and the UK is just over 95%.
“These are very high debt numbers and very high deficit numbers, and we’re actually doing pretty well,” Dimon said. “Usually you have to have a major recession or depression or war to have numbers like that.”
Dimon has often hinted that this issue will come to light and has reiterated that policymakers should “deal with it maturely and sit with it.”
“That would be a far better way,” continued the banker. “The other option is to wait for it to become a problem, and I suspect that’s exactly what’s going to happen. And that’s what will become apparent when interest rates go up, the market gets a little confused, people keep talking about it – think of the bond watchdogs – hopefully not worse than that, but it could be worse.”
This story was originally published on Fortune.com
https://finance.yahoo.com/economy/policy/articles/jamie-dimon-won-t-put-102322671.html
