{"id":44586,"date":"2023-01-20T12:29:21","date_gmt":"2023-01-20T12:29:21","guid":{"rendered":"http:\/\/www.brandon.ddtest.info\/multisite-test\/jamie-dimon-warns-beltway-hardliners-not-to-play-chicken-with-americas-31-trillion-debt-ceiling\/"},"modified":"2023-01-20T12:29:21","modified_gmt":"2023-01-20T12:29:21","slug":"jamie-dimon-warns-beltway-hardliners-not-to-play-chicken-with-americas-31-trillion-debt-ceiling","status":"publish","type":"post","link":"http:\/\/www.brandon.ddtest.info\/multisite-test\/jamie-dimon-warns-beltway-hardliners-not-to-play-chicken-with-americas-31-trillion-debt-ceiling\/","title":{"rendered":"Jamie Dimon warns Beltway hardliners not to play chicken with America\u2019s $31 trillion debt ceiling"},"content":{"rendered":"

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Jamie Dimon is worried\u2014not so much about where interest rates are heading or even the economic outlook, but rather Washington\u2019s impending standoff over the debt ceiling.\u00a0<\/p>\n

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The head of the world\u2019s most valuable lender, J.P. Morgan Chase, fears Beltway hardliners in Congress may risk a Defcon 1-style crisis in financial markets by bringing the country to the very brink of default on the $31 trillion<\/a> it owes creditors.<\/p>\n

\u201cI don\u2019t care who blames who,\u201d\u00a0he told CNBC\u2019s SquawkBox in Davos<\/a>, where he was attending the World Economic Forum. \u201cEven questioning [the government\u2019s ability to pay its bills] is the wrong thing to do.\u201d<\/p>\n

The debt ceiling dilemma has cropped up before, so the real cause for concern is the political bargaining skills of House Speaker Kevin McCarthy. <\/p>\n

In exchange for being elected this month after a\u00a0historic 14 failed votes<\/a>, he struck a deal that could see the fringe extremists in his party\u2019s so-called Freedom Caucus impede negotiations over raising the debt ceiling.<\/p>\n

The problem is if their beef is with government spending, they\u2019re barking up the wrong tree. It is Congress itself that controls the purse strings, not the executive branch.\u00a0<\/p>\n

The U.S. Treasury merely issues government bonds in the debt market. These close the shortfall between the spending that Congress already budgeted and approved on the one side and the revenue raised through federal taxes on the other.<\/p>\n

Brinkmanship could drive up borrowing costs for everyone<\/h2>\n

But by holding Secretary Janet Yellen\u2019s department for ransom, Republican hardliners aligned with Donald Trump hope to\u00a0hijack the legislative agenda<\/a>\u00a0in the new 118th<\/sup>\u00a0Congress and McCarthy is too weak at present to oppose them.<\/p>\n

This dangerous game of brinksmanship could\u00a0drive up borrowing costs<\/a>\u00a0across the country should investors vote with their feet and begin liquidating their U.S. assets.<\/p>\n

\u201cWe should never question the creditworthiness of the United States government,\u201d warned Dimon. \u201cThat is sacrosanct, it should never happen.\u201d\u00a0<\/p>\n

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\u201cThis is not something we should be playing games with at all,\u201d says @jpmorgan<\/a> CEO Jamie Dimon on the U.S. debt ceiling. \u201cCredit worthiness of the U.S. government should never be questioned.\u201d pic.twitter.com\/WhrBERa4SS<\/a><\/p>\n

\u2014 Squawk Box (@SquawkCNBC) January 19, 2023<\/a><\/p><\/blockquote>\n<\/div>\n<\/figure>\n

U.S. government bonds form the lifeblood of the global financial system. <\/p>\n

Risk is quite literally priced off the 10-year note: the appetite for everything from equities to cryptocurrencies is measured in terms of the premium investors charge to own these assets over ultra-safe Treasuries.\u00a0<\/p>\n

Moreover, the mere functioning of the credit system could be severely disrupted. <\/p>\n

The U.S. wholesale secured lending, or \u201crepo\u201d, market, responsible for an estimated\u00a0$4 trillion<\/a>\u00a0worth of interbank transactions every day relies predominantly on sovereign debt as a guarantee. <\/p>\n

If lenders were forced to impose haircuts on the value of that collateral, credit could dry up.<\/p>\n

Therefore a default would likely\u00a0cascade through the entire financial system<\/a>\u00a0with price effects rippling through numerous asset classes, starting in the U.S. before quickly expanding into Europe and Asia.\u00a0<\/p>\n

\u201cAmericans should understand that the American financial system is basically the crux of the financial system of the world,\u201d Dimon told CNBC.<\/p>\n

Inflation building under the surface<\/h2>\n

Dimon seemed skeptical of financial markets\u2019 sanguine approach to monetary policy as well, warning the Fed wasn\u2019t done hiking rates yet.\u00a0<\/p>\n

\u201cThere is a lot of underlying inflation which won\u2019t go away so quick. We\u2019ve had the benefit of China slowing down, the benefit of oil prices dropping a little bit,\u201d Dimon said.\u00a0<\/p>\n

With Beijing ending its draconian and ultimately ineffective zero COVID policy, more Americans leaving the workforce as well as upstream investment in petroleum exploration and drilling on the decline, there will be more inflationary pressures bubbling up from below.<\/p>\n

By comparison, Dimon seemed serene when asked about growth risks and the severity of any potential recession after his foretelling of a \u201churricane\u201d\u00a0alarmed markets last May<\/a>. The JP Morgan boss said the accuracy of any such predictions more often than not leave something to be desired.<\/p>\n

\u201cIt\u2019s like the weather,\u201d he said dismissively, recommending clients instead prepare for a range of varying macroeconomic scenarios.<\/p>\n

Finally, Dimon briefly addressed a question on Frank, the fintech his commercial banking arm Chase bought in 2021 that it now believes fabricated\u00a0over 4 million fictitious accounts<\/a>\u00a0to pass due diligence.<\/p>\n

He said his team was still analyzing what lessons to take away from the deal, but he called it a \u201csmall mistake\u201d that suggested he wasn\u2019t overly troubled.<\/p>\n

\u201cI don\u2019t want our people to be afraid of making a mistake, that\u2019s a bad way to run a business,\u201d Dimon said.<\/p>\n<\/div>\n

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Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.<\/a><\/p>\n<\/div>\n