Whoever wins the U.S. election may well have an unenviable task on their hands: bringing back into balance the nation's public debt compared to its GDP.
But JPMorgan CEO Jamie Dimon believes this work is absolutely critical because if the White House doesn't get out in front of the problem, its hand will be forced by the market.
The challenge of wrestling down America's debt-to-GDP ratio will not be a popular one: it could result in cuts to existing public spending or a tightening of the growth-focused fiscal stimulus that the public has grown accustomed to in recent years.
Yet without a reckoning Dimon—and many other high-profile market figures—warn the U.S. economy is headed for a car crash.
In an interview with Swiss magazine NZZ released Wednesday, Dimon said "eventually" Western countries will need to cut their spending.
"At $6 trillion, we have the largest peacetime deficit we've ever had. Is that too much? I don't know," he added. "But we shouldn't find out, and we shouldn't be forced to by the market—that would be the worst way to go."
Experts have warned what this market mutiny would look like. Joao Gomes, a Wharton Business School finance professor, told Fortune earlier this year than in order to continue spending—thus adding to its national debt—America needs to find buyers for those dues.
In a June 2024 update the Congressional Research Service found nations such as Japan, Mainland China, the U.K. and Luxemburg hold the highest amounts of Federal debts.
But Gomes warns: “If at some moment these folks that have so far been happy to buy government debt from major economies decide, ‘You know what, I’m not too sure if this is a good investment anymore. I’m going to ask for a higher interest rate to be persuaded to hold this,’ then we could have a real accident on our hands.”
If higher repayment rates—which would present an inflated bill in the longer term—can't be agreed upon, then Uncle Sam could find himself cap in hand with nowhere to turn for a loan.
This eventuality is something the 68-year-old boss of America's biggest bank has previously warned about.
Speaking at the Bipartisan Policy Centre in January, Dimon warned: “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 doesn’t start yet but when it starts, markets around the world…there will be a rebellion.”
The CEO who was paid $36 million for his work in 2023 doubled down this week: "No matter who becomes the next U.S. president, he has to acknowledge that we have a problem.
"And we need to fix it before it's too late."
Spending problems
According to Dimon, neither President Biden nor former President Trump want to be the political leaders who turn off the spending tap.
"They both want to spend a lot of money and that generally has positive implications in the short term," Dimon told NZZ. "What it means down the road remains to be seen."
Analysts point out that a certain level of government debt is actually a good thing—indeed higher spending in recent years has been absolutely critical to steer the economy through the likes of the COVID pandemic.
What has people like BlackRock CEO Larry Fink and Bank of America CEO Brian Moynihan so worried is America’s debt-to-GDP ratio.
This factor indicates to potential lenders how much the country owes versus what it produces and as a result, how feasible it will be for the country to pay back the debt.
For experts like Dimon, as well as Tesla CEO Elon Musk, the Congressional Budget Office doesn't have fantastic news. In its latest update it wrote: “In CBO’s current projections, the deficit for 2024 is $400 billion (or 27%) larger than it was in the agency’s February 2024 projections, and the cumulative deficit over the 2025–2034 period is larger by $2.1 trillion (10%).”
Dimon doing it himself?
Dimon, who has led America's biggest bank for nearly two decades, would not be drawn on whether he would be in the running to begin making some of these changes.
For many years the Wall Street veteran has been touted as a potential presidential nominee—an idea he has repeatedly shut down—or for a position such as Treasury Secretary—also a notion he has rejected.
Following increasing speculation about the performance of President Biden, the self-professed "barely a Democrat" has found himself roped into conversations about a potential replacement.
Speaking this week, Dimon once again shut down such speculation, saying "both Democrats and Republicans have picked their candidate."
He continued: "I'm hoping that the next president, whoever it is, reaches out to all Americans and brings in some capable people in the new government, some real experts across the fields.
"If it were me [as a Democratic nominee], I would also bring Republicans in, and meet consistently with the opposition."
