JPMorgan's Jamie Dimon warns of imminent U.S. bond market crisis
Jamie Dimon, CEO of JPMorgan Chase, warns of a looming crisis in the U.S. bond market. He believes that if the United States does not address its fiscal situation, the consequences could be severe for both financial markets and the dollar's standing worldwide.
U.S. markets are reacting nervously to the prospect of an increasing budget deficit. According to the "Wall Street Journal," changes proposed by Republicans in the tax system could increase the deficit by an estimated $2.7 trillion to $5.2 trillion over a decade. The U.S. national debt has already surpassed $36 trillion.
U.S. "We'll see a market crack"
“We'll see a crack in the bond market. It's going to happen,” assessed Jamie Dimon, CEO of JPMorgan Chase, during a presentation at the Reagan National Economic Forum in California. Investors' concerns led to a sell-off of 10-year Treasury bonds in May. Their yields rose by almost 25 basis points, reaching 4.418%.
The Moody’s agency downgraded the U.S.'s top credit rating, AAA, citing uncontrolled debt growth. The weak demand for bonds during the auction on May 21 was also concerning.
The U.S. administration is planning to ease capital requirements to facilitate banks' purchasing of Treasury bonds. However, according to Dimon, this is not sufficient. “You are going to see a crack in the bond market — OK. It is going to happen. And I tell this to my regulators — some of whom are in this room — I’m telling you this is going to happen. And you are going to panic,” he stated.
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, emphasized Jamie Dimon, quoted by "WSJ".
The head of JPMorgan is known for cautioning investors against excessive complacency. In May, he criticized markets for ignoring the long-term effects of tariffs imposed by Donald Trump during the trade war with China. Dimon also warns that excessive U.S. debt and the loss of economic and military leadership could threaten the dollar's position as the global reserve currency.
