JPMorgan CEO Says Bank Crisis Not Over, America Shifting Into a ‘Vicious Cycle’ (Connecting the Dots: Jamie Dimon, Alfalfa Club, The U.S. Supreme Court, Michael Bloomberg, Judge Juan Merchan & Soros Funding, All Networking)
By Tom Ozimek
April 4, 2023Updated: April 5, 2023
JPMorgan
CEO Jamie Dimon said in a letter to shareholders that the U.S. banking
crisis is not over, and that even when it does end, its impact will linger for
years, while warning that America seems to moving into a “vicious cycle.”
“As I write this letter, the current crisis is not yet
over, and even when it is behind us, there will be repercussions from it for
years to come,” Dimon wrote in the wide-ranging 43-page
missive that included the ominous warning that storm clouds
threaten the U.S. economy.
The collapse of Silicon Valley Bank (SVB) triggered a
crisis of confidence in the U.S. banking sector, prompting financial
authorities to rush through a rescue package to stem a potential run on bank
deposits that threatened broader financial instability.
“Any crisis that damages Americans’ trust in their banks
damages all banks—a fact that was known even before this crisis,” Dimon wrote.
In the two weeks since the failure of SVB, roughly $213
billion in deposits have been pulled from America’s domestically chartered
commercial banks as skittish savers rushed to withdraw their
money, according to the latest seasonally adjusted
Federal Reserve figures on deposit outflows.
While some argue that’s a relative drop in the bucket
compared to the roughly $16 trillion in total deposits held in U.S. domestic
banks, experts have
warned that the deposit flight is a factor contributing to
tighter lending standards, with small businesses especially vulnerable to what
some believe is a looming credit crunch.
“Regarding the current disruption in the U.S. banking
system, most of the risks were hiding in plain sight,” Dimon wrote, including
exposure to rising interest rates, which materialized when the Federal Reserve
set out on an aggressive rate-hiking cycle in a bid to tame soaring inflation.
Dimon faulted regulators for not including interest-rate
risk in stress testing, which exacerbated the risks.
When the crisis does eventually pass, it will lead to
changes in the regulatory framework, Dimon argued, while cautioning against
“knee-jerk, whack-a-mole, or politically motivated responses that often result
in achieving the opposite of what people intended.”
Rather than rushing to over-regulate, Dimon urged U.S.
financial authorities to “deeply think through and coordinate complex
regulations” in order to achieve stated goals while getting rid of “costly
inefficiencies and contradictory policies.”
“America has had, and continues to have, the best and
most dynamic financial system in the world—from various types of investors to
its banks, rule of law, investor protections, transparency, exchanges, and
other features,” he wrote.
“We do not want to throw the baby out with the bath
water.”
Recession Odds Rise
Dimon said that the banking sector turmoil from the
collapse of SVB—along with the failure of Swiss lending giant Credit
Suisse—have made a recession more likely.
“The failures of SVB and Credit Suisse have significantly
changed the market’s expectations, bond prices have recovered dramatically, the
stock market is down, and the market’s odds of a recession have increased,” he
wrote. “And while this is nothing like 2008, it is not clear when this
current crisis will end.”
While the crash in 2008 hit large banks, mortgage
lenders, and insurers with global interconnections, “this current banking
crisis involves far fewer financial players and fewer issues that need to be
resolved,” Dimon wrote.
“It has provoked lots of jitters in the market and will
clearly cause some tightening of financial conditions as banks and other
lenders become more conservative,” Dimon continued, referring to the potential
for a credit squeeze.
While he predicted that credit supply would face a
squeeze, Dimon said it’s unclear whether the disruption would slow consumer
spending.
Consumer spending, which drives over 65 percent of the
U.S. economy, has so far held up fairly well. In February, consumer spending
grew 0.2 percent month over month, though when adjusted for inflation, it
actually dipped 0.1 percent. The slowdown in spending growth in February—the
latest month of available data—followed a sharp increase of 1.8 percent in
January, which was the highest pace of growth in the measure in two years.
“By sometime late this year or early next year, we expect
consumers will have spent the bulk of their remaining excess savings,” Dimon
wrote.
“It remains to be seen whether this will cause a little bit
of a cliff effect or whether consumer spending will simply slow down. Either
way, this will add to whatever recessionary pressures there are sometime in the
future,” he predicted.
In the here and now, Dimon said he sees signs of strength
in the U.S. economy, including solid consumer spending, recovering supply
chains, a healthy jobs market, and higher wages.
Looking ahead, however, he sees trouble brewing.
“The current crisis has exposed some weaknesses in the
system,” Dimon wrote, adding that America faces a range of “unique and
complicated issues.”
‘Storm Clouds Ahead’
Besides the expected depletion of consumer excess
savings, Dimon pointed to other factors clouding the economic outlook.
This includes possibly persistent inflation, huge
geopolitical strains, the unpredictable trajectory of the Russia–Ukraine war,
and large quantitative tightening and “other unknowns” that reduce liquidity
and trigger higher long-term interest rates.
Dimon blamed “unprecedented” fiscal spending over the
past few years for pushing inflation to multi-decade highs and forcing the
Federal Reserve into a rapid interest-rate hiking cycle to try quash it.
“Fiscal stimulus is still surging through the system,” he
said, insisting that it’s been inflationary and that multiplier effects of the
stimulus mean that it still putting upward pressure on prices.
More deficit spending down the road—estimated at between
$1.4 trillion and $1.8 trillion per year over the next three years—is another
factor that makes inflation harder to root out.
Nearly 12 years of quantitative easing, whereby the Fed
expanded its balance sheet by buying government securities, drove interest
rates down to near zero and flooded the economy with cheap money, consequently
boosting stocks, real estate, and other assets.
“Importantly, this also increased bank deposits from $13
trillion to $18 trillion (and the now-famous uninsured deposits from $6
trillion to $8 trillion),” Dimon wrote.
As the Fed grapples with high inflation, it has reversed
more than a decade of quantitative easing and has been reducing its balance
sheet in what’s known as quantitative tightening, a process “whose full effect
may not be known immediately,” Dimon said.
So far, the Fed has reduced its holdings of securities by
around $550 billion and has committed to slashing those holdings by nearly $100
billion per month.
While the Fed’s balance sheet has shrunk, deposits at
banks have fallen by more than $1 trillion from their recent April 2022 peak.
“Unfortunately, some banks invested much of these excess
deposits in ‘safe’ Treasurys, which, of course, went down in value as rates
rose faster than most people expected,” Dimon said.
It’s precisely this dynamic that was widely blamed for
the collapse of SVB, which failed when investors rushed to withdraw their
uninsured deposits when they got wind of a $1.8 billion loss the bank took when
it liquidated its portfolio of Treasury holdings that had fallen in value.
The current process of quantitative tightening, which the
Fed has pledged to carry out at a pace of around $1 trillion per year, puts
upward pressure on interest rates and makes debt-servicing costs higher.
“While the central banks of the world are now selling
instead of buying securities, the governments of the world have larger debts to
finance. The United States alone needs to sell $2 trillion in securities, which
must be absorbed in the market,” Dimon wrote.
The Russian war in Ukraine is also having an impact on
global energy and food prices, Dimon said, adding that he sees a risk that
energy and food insecurity could trigger “another level of geopolitical
dislocation” in the form of a huge wave of migration.
Dimon believes we are shifting from a savings glut to
scarcity of capital, along with higher interest rates and higher inflation than
in the recent past.
“Essentially, we may be moving, as I read somewhere, from
a virtuous cycle to a vicious cycle.”
Connecting the Dots:
James
Dimon is the chairman & CEO for JPMorgan Chase & Co.
and a member of the Alfalfa Club.
Dianne Feinstein is
a member of the Alfalfa Club, a U.S. Senate senator
and married to Richard C. Blum.
Richard C. Blum is
married to Senator Dianne Feinstein and an honorary trustee at
the Brookings Institution (think tank).
Ellen V. Futter is
a trustee at the Brookings Institution (think tank), and a director
at JPMorgan Chase & Co.
Crandall C. Bowles is
a director at JPMorgan Chase & Co, and a trustee at the Brookings
Institution (think tank).
Geoffrey T. Boisi was
the vice chairman for JPMorgan Chase & Co, and is an honorary
trustee at the Brookings Institution (think tank).
Foundation to Promote Open Society was a funder for the Brookings
Institution (think tank) and the International Rescue Committee.
George Soros is the chairman for the Foundation
to Promote Open Society and a board member for the International
Crisis Group.
Ernesto Zedillo was
a board member for the International Crisis Group and is an
international advisory board member for JPMorgan Chase & Co.
Gordon A. Smith is
a director at the International Rescue Committee and the CEO, Chase
card services for JPMorgan Chase & Co.
William T.
Winters is a director at the International Rescue Committee
and was the co-CEO JP Morgan Investment Bank for JPMorgan Chase &
Co.
Foundation to Promote Open Society was
a funder for the International Rescue Committee and the Aspen
Institute (think tank).
George Soros is the chairman for the Foundation
to Promote Open Society.
Bloomberg
Family Foundation was a funder for the Aspen Institute (think
tank).
Michael R.
Bloomberg is the founder of the Bloomberg Family Foundation
and a member of the Alfalfa Club.
Jeb
Bush is a director at the Bloomberg Family Foundation, a
member of the Alfalfa Club and George H.W. Bush’s son.
George H.W. Bush is
Jeb Bush’s father, a member of the Alfalfa Club and a member
of the Phi Beta Kappa Society.
Samuel Anthony Alito Jr. is a member of the Phi Beta Kappa
Society and a justice for the U.S. Supreme
Court.
Stephen G. Breyer is
a member of the Phi Beta Kappa Society and a justice for the U.S.
Supreme Court.
Ruth Bader
Ginsburg is a member of the Phi Beta Kappa Society and a
justice for the U.S. Supreme Court.
Elena
Kagan is a member of the Phi Beta Kappa Society and a
justice for the U.S. Supreme Court.
Anthony M. Kennedy is
a member of the Phi Beta Kappa Society and a justice for the U.S.
Supreme Court.
Sonia Sotomayor is
a member of the Phi Beta Kappa Society and a justice for the U.S.
Supreme Court.
David Hackett
Souter is a member of the Phi Beta Kappa Society and was a
justice for the U.S. Supreme Court.
Harry A. Blackmun was
a member of the Phi Beta Kappa Society, and a justice for the U.S.
Supreme Court.
Lewis F. Powell
Jr. was a member of the Phi Beta Kappa Society and a
justice for the U.S. Supreme Court.
John Paul Stevens was
a member of the Phi Beta Kappa Society and a justice for the U.S.
Supreme Court.
William Howard
Taft was a member of the Phi Beta Kappa Society and the
chief justice for the U.S. Supreme Court.
Byron R. White was
a member of the Phi Beta Kappa Society and a justice for the U.S.
Supreme Court.
Potter Stewart was
a member of the Phi Beta Kappa Society and a justice for the U.S.
Supreme Court.
John G. Roberts
Jr. is the chief justice for the U.S. Supreme Court, and
an honorary member of the Robert Trent Jones Golf Club (Gainesville,
VA).
Vernon E. Jordan
Jr. is the president emeritus for the Robert Trent Jones Golf
Club (Gainesville, VA), Valerie B. Jarrett’s great uncle,
an honorary trustee at the Brookings Institution (think tank) and
was a member of the Iraq Study Group.
Foundation to Promote Open Society was a funder for the Brookings
Institution (think tank).
George Soros is the chairman for the Foundation
to Promote Open Society.
Lee H. Hamilton is
an honorary trustee at the Brookings Institution (think tank) and
was a co-chair for the Iraq Study group.
Iraq Study Group made
policy recommendations on U.S. involvement in Iraq.
Sandra Day
O'Connor was a member of the Iraq
Study Group, an associate justice for the U.S. Supreme Court
and is the president of the Alfalfa Club.
James
Dimon is a member of the Alfalfa Club and the chairman
& CEO for JPMorgan Chase & Co.
Michael R.
Bloomberg is a member of the Alfalfa Club, the founder of
the Bloomberg Family Foundation, was the New York Mayor and appointed
Judge Juan Merchan to the Family Court of the City of New York, Bronx
County in 2006.
https://en.wikipedia.org/wiki/Juan_Merchan
On April 4, 2023, Merchan oversaw the arraignment of former U.S. president Donald Trump on 34 felony
counts.[19] The indictment of
Trump, delivered by a grand
jury on March 30, was unsealed the same day, with Trump
pleading not guilty.
Resources: Past Research
JPMorgan's Dimon on US
default: 'You don't want to know'
SUNDAY, OCTOBER 13, 2013
https://thesteadydrip.blogspot.com/2013/10/jpmorgans-dimon-on-us-default-you-dont.html
Sandra Day O’Connor:
‘We Need Somebody There Now’ To Replace Antonin Scalia (Past Research on the Alfalfa Club)
THURSDAY, FEBRUARY 18, 2016
https://thesteadydrip.blogspot.com/2016/02/sandra-day-oconnor-we-need-somebody.html
Iraq Troop Withdrawl? CAPs
Joe Cirincione on ABC's GMA - Uploaded on Dec 1, 2006 (Past
Research on the Iraq Study Group)
MONDAY, OCTOBER 10, 2016
https://thesteadydrip.blogspot.com/2016/10/iraq-troop-withdrawl-caps-joe.html
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