Jamie Dimon warns panic will overtake markets as U.S. approaches debt default | Hacker News Reader

Jamie Dimon warns panic will overtake markets as U.S. approaches debt default

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24 pointsdonsupreme50 comments

I hope markets don't panic and I think the chances of an actual default are extremely low. However, I don't think the chances of a default are zero. Everyone I talk to seems to be saying "A devastating default [i.e. not like the brief blip in 1971] has never happened, therefore it cannot happen." Which doesn't seem like sound reasoning to me.

I imagine there's no escaping the fallout of such a default, but I'm thinking it may be time to take a break from treasury ETFs for while.

I really don't understand how default could ever be constitutional, although I don't think alternatives are great either.

The constitution is, in the end, a piece of old paper in a climate controlled box. It's on humans to bring it to life. Humans don't always do the things they say they will on paper even if they put one hand on a different book of paper and swear to while everyone watches.

I don't disagree that it could happen without being constitutional. Of course, the debt ceiling is also a piece of paper, as are any laws restricting the printing of money, etc.

> I think the chances of an actual default are extremely low

It could only happen if our political leaders are incredibly stupid, reckless, and self serving.

So I wouldn't bet against it.

The fact we're even talking about it right now says a lot.

I dread an actual or “technical” default but I think a line in the sand needs to be drawn.

Government freebies and overspending caused incredible harm to the general public as it contributed to inflation over the past few years. Real incomes are painfully down and the average person is much worse off.

We’re now paying close to $1T per year in interest alone on bloated US govt debt.

Enough is enough. Government spending needs to be cut.

Edit: those who downvote, what exactly do you disagree with in the above?

We sure could save a lot by cutting social security for old people, reduce medicare payments, cut down food stamps for people with kids that's a few trillion right there.

Or we could just cancel recent tax cuts that were focused on wealthy people and get trillions more in revenue. Remember the last pres has a record addition to the debt of $7 trillion with three debt increases without a threatened debt default, somehow.

Sure, I agree with you. Let’s make the tax system somewhat more progressive and simpler. But that alone won’t help enough.

The issue is the spending associated with and related to the “inflation reduction act”. Spending of this type is mostly unnecessary pork.

The only way to pay down the debt is massive tax increases on the wealthy. The same way we did it in from 46' to 80'

https://www.longtermtrends.net/us-debt-to-gdp/

Or how about we implement a FAIR tax system. the entire cost of the US is divided up by the count of its citizens equally. its easy to say "tax this tax that" when its other people getting ripped off. If everyone had to personally decide if playing warlord in god knows how many countries is worth the money they must rip out of their wallet, im guessing the US would be in less wars. if people had to vote with their wallet on whether stuff is worthwhile, i bet spending would be cut very very rapidly, instead everyone wants their cut of an increasingly larger cake, spiralling totally out of control

Yes, government spending needs to be cut -- but isn't the time to fight for fiscal responsibility when you're writing the budget, the tax code, and the various bills which authorize spending? Causing a crisis by defaulting _after_ you've overspent is only going to make lives more difficult for the general public.

Want a line in the sand? Promise to vote not to reelect your representative if they vote for a budget which increases spending at faster than k%/yr. If you're a hawk, pick k to be negative. But this default mess is just dysfunctional.

I am not from the US and I didn't downvote, but my understanding is that your congress needs to approve spending twice: first they vote for laws that require a budget to implement, and then later when the money is actually needed (but isn't actually available without exceeding the debt ceiling) then they need to vote again to increase the debt ceiling.

Trying to keep spending under control at that second stage, is like managing your budget by refusing to pay your credit card bill. It would make much more sense to control spending at the first stage.

"I am not from the US and I didn't downvote, but my understanding is that your congress needs to approve spending twice: first they vote for laws that require a budget to implement, and then later when the money is actually needed "

Sort of. The debt ceiling is not required by the U.S. constitution, so congress doesn't need to do things this way, the process could be changed by an act of congress. The debt ceiling was first established by law in 1917.

The debt itself is effectively leverage invented by congress. It has no real merit beyond a poker chip that also happens to be the financial nuclear option.

I don't see their motivation to get rid of something that actively works in their favor most of the time. That's the part that truly sucks.

They’re downvoting you (I’m guessing) because you fundamentally don’t understand how the budgeting process works. You can believe in cutting spending, sure - this is not the mechanism to do it.

Here’s a rough analogy - you can decide at the start of the month not to buy a gym membership to save money, however you cannot sign a contract for the gym and then decide at the end of the month not to pay it to save money, and further, when the gym come to collect you threaten to shoot yourself in the foot unless the gym tears up your contract. (This last part is exactly as dumb as the Republicans threat).

You don’t have to like your opponent’s strategy, but you also don’t get to decide whether or not they use it.

The goal is to cancel BS “inflation reduction act” spending that was approved prior to the House having a Replublican majority. This is their chance to do this.

And considering the threat “dumb” is naive. There are just as many scorched earth conservatives as liberals.

I downvoted because of “freebies”, not because of a misunderstanding of budgets.

The government's budget process is not unique in any fundamental way. It's only different because it's political and has many different people's interests in the matter. Otherwise it obeys the same principles as a personal budget. Nothing prevents you from over budgeting your income and borrowing to the max, and then when your income is gone and have no money left to pay your bills or creditors, to ask for an extension of credit.

Your analogy is toothless, given the principles behind that scenario happens every day in the credit industry.

but would you not pay your mortgage and f* up your credit if your wife said I'll talk to you about budget once we pay the mortgage?

btw, I didn't downvote you.

A better analogy is my wife took out a mortgage in my name and I’m refusing to pay it.

Ah, so anarchy. No continuity in government. What rational thinking. I too was a big anarchist when I was 15 and there was a fun punk scene in the Bay Area.

Anarchy?

Not sure I follow. I’m simply saying that you need to compromise with me or I’m willing to take action that will hurt both of us.

If the government was obligated to get approval from every single person for every single decision there would be no government; you cannot even get every single person to agree that the sun rises in the east or the sky is blue. You have a petulant child's worldview.

The system is designed in this way though. If it wasn't meant to be a two step process, which allows a new party to make a different (painful) decision later on, then it wouldn't have been designed this way.

There's a big problem with US debt these days. I'm not sure the Republican's gimmick today is the appropriate solution, but something has to be done, or this will be the undoing of the US. Increase income, reduce spending, there's not many ways to go about it. And you need to do both. Unless you just plan on devaluing the currency, which isn't going to last long with the nascent tug of war in reserve currency status being mounted by China.

The US is very vulnerable right now and most people aren't willing to swallow the hard medicine required. The undoing of previous prominent powers historically came in similar fashions.

More tax, reduced spending. Harder work.

No, the system is not designed to be a two step process. The debt ceiling was created to give authority to Treasury to issue debt to X limit so that Congress did not need to approve every single bond (think of it as a way to keep the separation of powers yet also run government debt in the more efficient manner needed in the modern world versus when the United States had 2.5 million people). It was not created as a Sword of Damocles. It was purely for administrative purposes not to replace actual budgets being created by a clearly incompetent Congress and horrible political class.

That's a terrible analogy.

A better one would be that my wife and I ran up a huge pile of debts and now even though I want to pay it she went off her meds and has changed the password on our banking app. This is putting us at risk of being foreclosed on.

Sure, enough is enough, but why this mechanism and not during the budgeting process? One allows the overall system to work, the other showcases to the world (yet again) that the US can't be trusted with systems necessary for international collaboration.

It is boggling how many in the US blithely hand wave away the incredible damage this exclusively inward view does in the long term.

It will never be done during the budget process because Republicans would need to show their hand. They can't balance the budget without touching the third rail of politics.

The debt ceiling let's them act tough without pissing off the American people.

> those who downvote, what exactly do you disagree with in the above?

they believe that taxing someone else more is gonna allow their spendomania to continue. if only we take a little bit more of someone elses money!!!

Where would you even go if the US defaulted? It's such an armageddon level event that I don't know how you even begin to hedge it.

> Where would you even go if the US defaulted?

Longer-dated Treasuries. This is a technical default, and when threatened in the past, other Treasuries rally. The problem is if someone needs liquidity in an affected issue, or if this prompts a general risk-off mentality which then leads to rising capital costs across the private sector.

The shortest dated government debt is overnight. But if they don’t pay the overnight rate to money market funds using the reverse repo or banks money in the federal reserve, surely that would cause a divide by zero error somewhere in the financial system.

We seem to do this every few years, no? Isn’t this just a re-run of political brinkmanship and posturing from the time before, and the time before that? Sure does seem to get the clicks, though.

The GOP has gotten increasingly radical since throwing in with Evangelicals and segregationists[0]. It accelerated with the Tea Party[1] wave which dragged the party further to the right, and keeps getting worse. We always came back from the brink because a shrinking number of cooler heads prevailed. Coming back this time depends on there being enough cooler heads.

[0] https://en.wikipedia.org/wiki/Southern_strategy

[1] https://en.wikipedia.org/wiki/Tea_Party_movement

There are two sides involved. It’s up to both of them to find a compromise.

Both sides pledged to support and defend the constitution when they took the job. One side is refusing to do that. The compromise is they pay their debts and think about this the next time they want to give billionaires a tax cut.

https://constitution.congress.gov/browse/amendment-14/sectio...

>> "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

lol please, as if one side is significantly better than the other. the establishment is exactly the same on both sides, and believe me, they do not work for you. stuff like "one side is refusing that" is just ridiculous partisanship, and anyone that believes it, on EITHER side, just lives in a bubble. and looking at things, the democrats are FAR more radical the the republicans. Both are borderline traitors though, and deserves not an iota of power

Only one side takes the other side hostage by threatening an economic catastrophe. 1995, 2011, 2013, and 2023 debt ceiling standoffs were all initiated by the GOP. [0]

It makes zero sense to pass a budget without providing the means to finance that budget.

[0] https://en.m.wikipedia.org/wiki/History_of_the_United_States...

But isn't the current situation one in which the House is authorizing borrowing to avoid default while also rolling back future spending? So it's not "vote to spend money, but then make it impossible"?

Under the US constitution, isn't money supposed to be spent only if both the House and Senate agree that it should be spent, and either the President also agrees or his veto is overridden? So if the House doesn't want to spend money, it doesn't get spent. It seems that some politicians just can't accept that. They think that for some reason the House is supposed to "compromise" and agree to spend money even though they don't think it should be spent. It seems that it's these politicians who are the radical ones taking the US to the brink of default.

Congress already spent/appropriated the money. This is closer to lowering your own credit limit AFTER maxing out the card.

I don't know the details of the bill, but doesn't it simultaneously increase the credit limit (avoiding default), while cutting future spending? I don't see any inconsistency.

The House and Senate already approved the spending. That is what passing a budget means.

The debt limit is a chance for Republicans to force cuts, without having to take a stand on what programs need to be cut.

The inconsistency is that they voted for the spending (and tax cuts) that caused us to reach the debt ceiling. If they wanted to not spend that money it should have been negotiated as part of _that_ process.

And that’s before pointing out that holding the nations credit hostage only happens by GOP legislators when there is a democrat president.

It’s political hypocrisy of the worst sort that has the most likelihood of hurting the most Americans of any decision the federal government can make.

The "holding hostage" phrasing implies that somehow the House needs to use the debt ceiling as leverage to cut spending. But to cut spending, the House just needs to not approve spending - no agreement by the Senate or President should be required. So there's something funny going on. I don't know what exactly - maybe they anticipate that the Senate will "hold hostage" spending on essential programs in order to get the House to approve spending on programs the House doesn't want to approve?

Anyway, the "holding hostage" phrasing would make more sense if the House were using the debt ceiling issue to try to force action on some unrelated issue (eg, abortion). Linking the debt ceiling increase with future spending cuts is not that sort of thing.

It is unrelated. They approved the budget that is causing the debt ceiling to be breached already. By tying it to future spending they are trying to conflate the issues when they are not related.

The place to discuss future spending is during the appropriations process, by requiring it to happen now because of the debt ceiling is precisely holding the credit of the US hostage.

So why have a debt ceiling at all? A ceiling makes no sense if whenever it is about to be reached, unconditionally increasing it is regarded as imperative, with any attempt to link an increase in the debt ceiling to measures that would limit future debt being denounced as "holding the credit of the US hostage". The only point of a debt ceiling would be encourage such a linkage.

The US is one of very few (<2, inclusive) countries that has this "debt ceiling" malarkey. It's a political tool in the US, that's ita only purpose.

https://en.wikipedia.org/wiki/Debt_limit

Correct. It’s a flawed and hypocritical political tool, one used exclusively by one party when they don’t want to actually do the hard work of governance.

The American people would be much better off if there were no debt ceiling.

Seems correct.

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