Jamie Dimon, the CEO of JPMorgan Chase, sounded a serious alarm on Thursday about the potentially catastrophic consequences if the United States defaults on its debt. This grave warning comes as lawmakers continue to wrangle over raising the nation’s debt ceiling.
Speaking to Bloomberg TV at the Global Markets Conference in Paris, Dimon expressed his apprehension. “A default is potentially catastrophic,” he cautioned, highlighting the urgency of the situation as the clock ticks towards the June 1 deadline to increase the U.S.’s $31 trillion borrowing limit.
According to Treasury Secretary Janet Yellen, if the debt ceiling isn’t lifted, the government could exhaust its resources to pay its bills. While Dimon remains hopeful that the U.S. won’t see its first-ever debt default, he acknowledged the rising pressure as the deadline nears.
“The closer you get to it, you will have panic… Markets will get volatile, maybe the stock market will go down, the Treasury markets will have their own problems,” Dimon elaborated. He also noted that the financial turbulence could affect his own bank, which recently acquired the assets of the failed First Republic.
The deadlock over the debt ceiling is currently a hot topic in the Capitol. President Joe Biden met with several lawmakers, including House Speaker Kevin McCarthy, on Wednesday to discuss raising the limit. However, with Republicans demanding spending cuts and other conditions, no consensus was reached.
It’s worth recalling that a similar standoff in Congress in 2011 resulted in a downgrading of the U.S.’s Triple-A credit rating at S&P.
Beyond affecting the creditworthiness of the country, Dimon warned that a default could also harm contracts, collateral, clearing houses, and international clients. He revealed that “war room” discussions are already underway and predicted that as the deadline approaches, these intense meetings will ramp up in frequency.
In fact, he projected a future timeline, saying, “But my guess is some time – call it May 21 – it’ll be every day. And then it’ll be three times a day. And then there will be more conversations with clients about what they need to do, to help get them through it. It’s very unfortunate. It should never happen this way.”
As investors brace for a possible default, short-term Treasury bill yields have seen a sharp increase. “It’s amazing you already have certain T-bills trading at 3% and right next to them 5%. This is not good,” Dimon noted. He emphasized the importance of the American financial system as the bedrock of the global economy.
With the one-month Treasury yield at 5.55% and the three-month yield at 5.2% on Thursday, Dimon urged caution. “The last time we were downgraded, we had a 65% or 70% debt to GDP [ratio]. Now it’s 105. Now our deficits are two or three times that we had back then, so we better be very careful,” he said.
President Biden, in his meeting with Congressional leaders, asserted that defaulting is not an option, saying, “America is not a deadbeat nation. We pay our bills.” As the economic stage is set for an intense negotiation, the investment world watches with bated breath.