The CEO of the largest US bank sounded the alarm about the serious risks posed by mounting US debt.
In a letter The US government needs to address its debt problem immediately before the situation escalates into a crisis, Jamie Dimon, Chairman and CEO of JPMorgan Chase, tells shareholders.
“High and rising government debt must eventually be dealt with – the right way is to deal with it now before it becomes a problem; the wrong way is to let it turn into a crisis, which, in my view, is probably the likely outcome.”
Dimon is issuing this warning amid what he says is a rise in global deficits and sovereign debt.
“Global deficits have risen dramatically, especially during what was considered a relatively healthy global economy and, until recently, a period of peace – the global deficit is a very high 5%, while global sovereign debt is at an all-time high. Current projections from the Congressional Budget Office indicate that the debt-to-GDP ratio will rise from 100% today to 120% in 2036.”
Dimon says the downturn in the credit cycle that will one day occur will result in higher-than-expected losses All leveraged lending in general.
“This is because credit standards have been weakening quite modestly across the board; namely, more aggressive and positive assumptions about future performance (called add-ons), weaker covenants, more use of PIK (payment in kind; not paying interest in cash but collecting it), more aggressive special ratings (especially on insurance companies) and more arbitrage (not always a good sign).
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