Jamie Dimon says Washington faces a global market ‘rebellion’ over record U.S. debt: ‘It is a cliff… we’re going 60 mph towards it’

September 26, 1940, New York Times: The federal budget was a “ticking time-bomb which can eventually destroy the American system,” said Robert M. Hanes, president of the American Bankers Association. 

You can read more than 40 similar dire references to the federal debt at Historical claims the Federal Debt is a “ticking time bomb.”

For 84 years, bankers and other self-proclaimed experts have predicted America’s destruction because of the growing “federal debt” (which isn’t federal and isn’t a debt).

And now, on   January 28, 2024. Fortune 84 years later, we come to this: 

Jamie Dimon, JPMorgan Chase CEO, tells us:  “The global economy is approaching the point of no return courtesy of mounting government debt, and it will lead to a massive falling out of markets and federal institutions.

“Washington faces a global market ‘rebellion’ over record U.S. debt: ‘It is a cliff… we’re going 60 mph towards it.”

“Currently, the American national debt stands at $34.14 trillion—about $100,000 for every person in the U.S.—with the debt ceiling currently suspended until 2025 courtesy of a deal passed in the summer of 2023.” 

Should history be a guide? 

For those past 80+ years, while self-proclaimed experts repeatedly predicted the death of the American economy, GDP has grown, and grown, and grown, with only short delays, sometimes caused by bank criminality and, most recently, by COVID.

Does the above graph look like a “ticking time bomb,” a “massive falling out of markets and federal institutions,” a “global market rebellion,” or a “cliff”?

Year after year, eight-plus years of being wrong have not taught Jamie Diamon et al. anything. 

Despite his $34 million salary (plus extras), Diamon seemingly is clueless about economics. He speaks of “federal debt” in the same terms as personal or business debt. Here is where he is wrong:

1. The so-called federal debt isn’t debt. It’s the total of deposits into Treasury Security accounts. These accounts are similar to bank safe deposit boxes in that the depositors retain ownership of their deposits.

2. That so-called federal debt also isn’t federal. It belongs to depositors. Unlike regular bank deposits, no bank or the federal government ever touches the “federal debt” deposits.

3. The misnamed “debt” also isn’t borrowing. Our Monetarily Sovereign federal government doesn’t use the deposits to pay its bills. The federal government pays all its bills by creating new dollars ad hoc, which it can do endlessly.

The purpose of T-securities is to provide a safe place to store unused dollars and to help the Fed control interest rates.

This is different from monetarily non-sovereign state/local governments, which do borrow to pay their bills.

4. Similar to safe deposit boxes, the government doesn’t owe the contents. The government merely stores the contents, and upon maturity, the government merely returns the contents to the depositor. That so-called “debt” isn’t even debt.

5. Like safe deposit boxes, the size of the contents doesn’t affect the government’s risk or liability. Whether you put a toy marble or a 20-carat diamond into a safe deposit box doesn’t change the bank’s risk. 

6. By the way, you, as a taxpayer, have zero risk regarding T-securities. Diamon’s claim about “$100,000 for every person in the U.S.” is 100% misleading. You don’t owe a penny of that, nor does the government.

And although some of the shorter-term economic signals are flashing green—inflation is coming down, the Fed may be eyeing rate cuts, and employment is staying stable—the boss of America’s biggest bank isn’t convinced there isn’t a major red flag ahead.

Everything is headed in the right direction, but Diamon sees all that as dangerous.

Speaking on a panel alongside former Speaker of the House Paul Ryan at the Bipartisan Policy Center last week, Dimon said the American government faces a “hockey stick” effect regarding government debt.

He drew on the comparison of the 1980s for context, explaining that in 1982, unemployment was around 10% while the stock market had sat stagnant for 15 to 20 years.

The recession of 1980 had nothing to do with increased federal debt. Quite the opposite: Federal “debt” growth declined immediately before the recessions of 1980 and 1981. The recessions were cured by federal “debt” growth. 

In fact, that is the historical pattern: When federal debt doesn’t grow sufficiently, we have recessions. Those recessions then are cured by increased federal debt growth.

The reason: Federal “debt” grows faster when the federal government increases deficit spending, because federal deficit spending adds growth dollars to the economy.

By mathematical formula, federal government spending increases Gross Domestic Product (GDP), the most common measure of the U.S. economy. (GDP=Federal Spending + Nonfederal Spending + Net Exports.)

Here is that effect, historically.

Even with the Vietnam War, America’s debt-to-GDP ratio was around 35%, Dimon said, whereas today it sits at 100%.

The debt-to-GDP ratio is meaningless. It measures nothing, and it predicts nothing. 

Looking at a list of the national government’s debt/GDP ratios will tell you absolutely nothing about the health of any government’s finances. High ratio, low ratio; they all are meaningless.

Further, GDP does not pay for the federal “debt.” GDP is the total spending in the economy. That has nothing to do with the total deposits into T-security accounts or with the total of federal deficits (another measure of federal “debt”)?

The federal “debt”/GDP ratio is no better than the number of robin’s nests in your backyard vs. the number of stars you can see at 8:00PM from your bedroom window: Two separate measures that produce a meaningless ratio that is often quoted by people who should know better, and often do..

It is difficult to believe that the CEO of the world’s largest private bank doesn’t know this.

“Back then, the deficit during a recession—you spend money in a recession—was 4% or 5%. Today, it’s 6.5% in a boom time,” Dimon continued.

The deficit measures the net amount of money the federal government creates, most of which goes into the U.S. economy to create the economic growth we all love. No deficits = no growth = depression.

 Jamie Dimon warns that ‘all these powerful forces’ will affect the U.S. economy in 2024 and 2025. He added: “If you look at that 100% debt to GDP by [2035] I think it’s going to be 130% and it’s a hockey stick. That hockey stick hasn’t started yet, but when it starts, it markets worldwide… there will be a rebellion.”

Dimon’s “hockey stick” scenario could occur as the American government faces higher charges to service increasing levels of debt, potentially in an economy which many are predicting will enter a slow or no-growth era.

This isn’t just bad news for the Home of the Brave—America’s ability to pay its debts is a concern for the nations around the world, which own a $7.6 trillion chunk of the funds.

You have just read three short paragraphs of utter nonsense. Whether the federal debt (the cumulative total of federal deficits or the total of T-security deposits — either definition is correct) is 103%, 230%, or 930% of GDP does not affect America’s ability to pay its debts. 

If you gave the federal government a $100 trillion invoice today, they could give you a check for $100 trillion tomorrow. You instantly would become the world’s richest person, and the federal government could continue its other spending without missing a beat.

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Alan Greenspan: “A government cannot become insolvent concerning obligations in its own currency.”

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.

So why does Diamon make those incorrect claims?

I believe he knows the truth, but he works for the rich, and the rich do not wish you to understand the Dirty Little Secret of Federal Finance: Federal Taxes Don’t Pay For Federal Spending.

Indeed, federal taxes don’t pay for anything. Every penny of those federal taxes you pay is destroyed upon receipt. See: “Does the U.S. Treasury really destroy your tax dollars?“

Why might Diamon want to disseminate the lie that federal taxes fund federal spending? We’ll discuss that later in this paper.

The nations most exposed are Japan, which owned $1.1 trillion as of November 2023, China ($782 billion), the U.K. ($716 billion), Luxembourg ($371 billion) and Canada ($321 billion).

Charging head-first into a global fistfight with domestic and international markets is the “worst possible way to do it,” Dimon added, saying: “It is a cliff. We see the cliff. It’s about 10 years out.”

I would be willing to wager, Mr. Dimon, our respective annual incomes that neither Japan, China, the U.K., Canada, or the U.S. can pay their debts in 10 years. Mention that when you next see him.

And by the way, also tell him that the “10 years out” is the classic hedge of charlatans. It allows one to make ridiculous predictions that no one will remember if it’s wrong, but everyone will be reminded if, by some good fortune, it turns out right.

Paul Ryan chimed in that the debt spiral is the “most predictable crisis we’ve ever had,” with Dimon agreeing.

There is ZERO possibility that the U.S. federal government could face a  “debt spiral.”

A debt spiral is a situation where a country (or firm or individual) sees ever-increasing debt levels. These increasing debt and interest levels become unsustainable, eventually leading to debt default.

Being Monetarily Sovereign, the U.S. federal government:

a. Is nothing like a firm, individual, or even a nation like monetarily non-sovereign Italy, Greece, or France.

The fact that Ryan predicts a debt spiral for the United States demonstrates his abject ignorance or dishonesty about federal finance.

b. Never borrows dollars. It never needs to. It creates all the dollars it needs.

c. No dollar debt is unsustainable for the U.S. government. 

‘This is about the security of the world.’ The banking boss, who was paid $36 million for his work in 2023, added his alarm goes beyond financial industry ramifications.

Throughout the past year, Dimon has been sounding the alarm on increasing geopolitical tensions, namely the Israel-Hamas conflict and Russia’s invasion of Ukraine.

“This is about the world’s security,” 67-year-old Dimon added. “We need a stronger military; we need a stronger America. We need it now. So I put this as a risky thing for all of us.”

At this point, Dimon is just babbling random thoughts: Israel, Hamas, Russia, Ukraine, stronger military, and though a nation with infinite dollars won’t be able to use those dollars to pay for a more robust military. Nonsense.

On Dimon’s point, Republican politician Ryan later added he believes “in five years we’re going to be paying more in interest than we will be the Pentagon.”

This is a favorite trope of the “debt” alarmists: “Paying more interest than __________” (fill in the blank). That comparison is supposed to scare us. But why?

Why should the possibility that a nation with infinite dollars be worried about paying interest in dollars? The federal government’s interest payment helps economic growth by adding dollars to GDP.

The event in Washington, D.C., spanned a wide range of topics, including the balance of equality, with Dimon admitting he’d tax the rich more to support the poor. He described the idea as “as much of a no-brainer policy as I have ever seen.”

It is Easy to favor taxing the rich more when he knows it never happens. Even when tax rates are increased, there is an appearance of taxing the rich more; the rich have too many tax dodges for any “balance of equality.”

There are hundreds of ways in which the rich pay a lower percentage of their income in taxes than the middle-income people. Here’s just one:

The problem with the current tax system, the White House says, is that unrealized gains could go untaxed forever if wealthy people hold on to them and pass them on to heirs when they die.

“If a wealthy investor never sells stock that has increased in value, those investment gains are wiped out for income tax purposes when those assets are passed on to their heirs under a provision known as stepped-up basis,” the analysis says.

Under a stepped-up basis, the value of the asset is adjusted to the fair market value at the time of the inheritance. This wipes out any taxes on the unrealized gains that accumulated from when the investor bought the asset and the time it was inherited.

SUMMARY

America is run by the rich, whose money encourages economists, politicians, and the media to help the rich become richer.

There are two ways for the rich to become richer, i.e., to obtain more comparative wealth:

1. Widen the wealth Gap below while narrowing the Gap above.
2. Obtain more wealth for themselves.

To accomplish #1, the rich must convince those below them that the federal government cannot afford to pay benefits or that adding benefits requires more taxpayers’ dollars — both untrue.

Thus, we have poor people, who would benefit from free comprehensive, no-deductible Medicare for All and Social Security for all, voting against such programs, and we have business leaders like Jamie Diamon spreading the Big Lie that federal “debt” will cause a catastrophe — all much to the delight of the rich. 

Dimon works for the rich, who want the income/wealth/power Gap widened. Seemingly, his $36 million+ salary isn’t enough, and he needs you to believe the federal government can’t improve your life unless you suffer more. 

So long as people believe the so-called “federal debt” is a burdon on the economy, rather than a necessity for economic growth, we will have scare-mongers like Jamie Dimon and others. 

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.