JAMIE DIMON THINKS STAGFLATION IS POSSIBLE
Published on Friday, April 26, 2024
What worries him is the national debt-to-GDP ratio.
JPMorgan Chase chief executive Jamie Dimon is worried about the possibility of the US economy repeating the stagflation problems of the 1970s.
He is not an outlier either -- other analysts have warned about this scenario.
"Yes, I think there’s a chance that can happen again," Dimon said during an appearance Tuesday at the Economic Club of New York, as Yahoo Finance reported. “I worry that it looks more like the '70s than we've seen before.”
Stagflation is the name for a difficult set of economic conditions that made notorious trouble in the 1970s. It means a combination of strong inflation and so rising prices, high unemployment, and slow economic growth. About 68% of GDP is consumer spending. With high prices and unemployment, there is much less ability for the economy to weather a recovery because many of the people who would need to spend money can’t afford to.
The malaise in the 70s, along with other factors like a switch off the gold standard and the OPEC energy embargo in the late part of the decade ultimately led to very high inflation and stiff interest rates that the Federal Reserve enacted to battle it. Borrowing rates well into the middle and upper teens became common.
Dimon has been warning about a stagflation potential for some months. Back in 2018, he said that Treasury yields on the 10-year should have been 4% and could reach 5%. That eventually happened, but about five years after the prediction.
Earlier this month in his annual letter to JPMorgan shareholders, Dimon said that the bank was planning for potential interest rates that ran from 2% at the bottom to 8% at the top “with equally wide-ranging economic outcomes — from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation; i.e., stagflation.”
Dimon mentioned concerns about government spending, the national debt, and geopolitical conflicts that could end in supply chain disruption — which was a driving force of inflation through the pandemic. As Fortune reported, he thought some current conditions were worse than in the 1970s. “If you go back to the ’70s, deficits were half of what they are today, the debt to GDP was 35%, not 100%, and so part of the reason I think we’ve had this strong growth is the fiscal spending,” he said.
Dimon pointed to economic growth as key to solving problems. "We need to do more and better, and that's why we need to grow the economy," he said. But pumping up government spending and adding to debt could be dangerous. “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.”
He is not an outlier either -- other analysts have warned about this scenario.
"Yes, I think there’s a chance that can happen again," Dimon said during an appearance Tuesday at the Economic Club of New York, as Yahoo Finance reported. “I worry that it looks more like the '70s than we've seen before.”
Stagflation is the name for a difficult set of economic conditions that made notorious trouble in the 1970s. It means a combination of strong inflation and so rising prices, high unemployment, and slow economic growth. About 68% of GDP is consumer spending. With high prices and unemployment, there is much less ability for the economy to weather a recovery because many of the people who would need to spend money can’t afford to.
The malaise in the 70s, along with other factors like a switch off the gold standard and the OPEC energy embargo in the late part of the decade ultimately led to very high inflation and stiff interest rates that the Federal Reserve enacted to battle it. Borrowing rates well into the middle and upper teens became common.
Dimon has been warning about a stagflation potential for some months. Back in 2018, he said that Treasury yields on the 10-year should have been 4% and could reach 5%. That eventually happened, but about five years after the prediction.
Earlier this month in his annual letter to JPMorgan shareholders, Dimon said that the bank was planning for potential interest rates that ran from 2% at the bottom to 8% at the top “with equally wide-ranging economic outcomes — from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation; i.e., stagflation.”
Dimon mentioned concerns about government spending, the national debt, and geopolitical conflicts that could end in supply chain disruption — which was a driving force of inflation through the pandemic. As Fortune reported, he thought some current conditions were worse than in the 1970s. “If you go back to the ’70s, deficits were half of what they are today, the debt to GDP was 35%, not 100%, and so part of the reason I think we’ve had this strong growth is the fiscal spending,” he said.
Dimon pointed to economic growth as key to solving problems. "We need to do more and better, and that's why we need to grow the economy," he said. But pumping up government spending and adding to debt could be dangerous. “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.”