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Jamie Dimon is worried about how much the US is borrowing. Here’s why

Analysis by Nicole Goodkind, CNN

New York (CNN) — A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

Major business leaders and economists are worried about America’s growing debt problem.

Last week, JPMorgan CEO Jamie Dimon expressed fear that a crisis is looming and that unchecked deficit spending could explode.

“Any country can borrow money and drive some growth, but that may not always lead to good growth,” he said in an interview with Sky News. “I think America should be quite aware that we have got to focus on our fiscal deficit issues a little bit more, and that is important for the world.”

Dimon went on to say that the deficit is “why we have higher inflation” and that he hopes that the US government “really focuses” on reducing the deficit. “At one point it will cause a problem, and why should you wait?” he said.

That problem “will be caused by the market, and then you will be forced to deal with it and probably in a far more uncomfortable way than if you dealt with it to start.”

What’s happening: Bridgewater hedge fund founder Ray Dalio also told the Financial Times last week that investors should be “worried about the US debt picture.”

Economist and former dean of Columbia Business School Glenn Hubbard told Before the Bell last week that interest “payments on the national debt, which were essentially zero a couple of years ago, are now as big as defense spending.” The next president, he said, will have to deal with this issue.

“He may not be campaigning on it, but whoever he is, he’s going to have to do something about it,” he said.

So why the sudden confluence of concern?

The big picture: Between the Trump-era tax cuts and Covid-era stimulus programs, the national debt has exploded in recent years. Spending via President Joe Biden’s Inflation Reduction Act has continued to add to the debt.

The United States government is spending a lot more than it’s bringing in — it has run a budget deficit for six of the first seven months of this fiscal year. So far this fiscal year, the deficit has accumulated to about $855 billion – more than 6% of US gross domestic product (a measurement of the economy). That adds to the $34.6 trillion cumulative debt load the US has on its shoulders.

The problem isn’t just the large debt and deficit, it’s that the US is running a deficit that’s equivalent to nearly 7% of GDP while the economy is at full employment and is performing at its full potential, Jason Thomas, head of global research & investment strategy at Carlyle, told CNN.

What that implies is that if the US hits a recession — requiring the government to boost spending on stimulus programs even as tax receipts decline — “you’re likely looking at a deficit that could be nine or 10% of GDP,” Thomas said. “This is absolutely unsustainable.”

Why it matters: As deficits grow, the federal government has to issue more Treasury securities. That means they have to increase yields to attract more investors. That also raises borrowing costs across financial markets, hurting economic growth.

Last month, the IMF said the high and rising level of US government debt risked driving up borrowing costs around the world and undermining global financial stability, reports my colleague Hanna Ziady.

That warning followed an even blunter message from the head of the Congressional Budget Office, the US Congress’s independent fiscal watchdog, which said the United States risked a bond market crisis of the kind that engulfed the United Kingdom under former Prime Minister Liz Truss.

The US also has to pay interest on this growing debt. The government currently spends $2.4 billion on interest payments each day, according to the Peterson Foundation. Those payments are expected to double within the next decade as Treasuries issued during the period of near-zero interest rates mature and are replaced by bonds with higher yields.

Why now: 82% of voters say they want the president and Congress to spend more time addressing the debt, and 80% say their level of concern has increased over the last few years, but government officials want to avoid talking about tax increases or reduced spending in an election year, said Hubbard.

“This is not, as far as I can tell, much of a topic of the campaign,” echoed Thomas. “That suggests to me that it’s probably not going to be addressed.”

If that’s the case, the 10-year US Treasury yield could hit “5.5% before you have a lot of political pressure [it currently sits at 4.4%]. At that time we would have mortgage rates at 8%,” he said.

Trump Media lost more than $300 million last quarter on very little revenue

Trump Media & Technology Group lost more than $300 million during the first quarter and generated very little revenue, the owner of Truth Social announced in a press release Monday.

The results will raise additional questions about the multi-billion dollar valuation on the newly public company, which is majority owned by former President Donald Trump, reports my colleague Matt Egan.

Trump Media (DJT) reported a loss of $327.6 million during the first three months of the year, compared with a loss of $210,300 a year earlier.

In the press release, Trump Media said that at this “early stage” in its development, the company “remains focused on long-term product development, rather than quarterly revenue.” It acknowledged that its advertising business is just getting off the ground and expressed confidence that new products like streaming will boost its results in the future.

The company blamed the losses on non-cash expenses from the conversion of promissory notes and the elimination of previous liabilities.

“After an unprecedented, years-long process, we have consummated our merger and dispensed with the vast bulk of merger-related expenses, leaving the Company well-capitalized and supported by a legion of retail shareholders who believe in our mission to provide a free-speech beachhead against Big Tech censorship,” Trump Media CEO Devin Nunes said in a statement. `

Trump Media reported an operating loss of $12.1 million, with a chunk of that being driven by one-time payments related to the closing of its merger with a blank-check company earlier this year.

The company generated just $770,500 of revenue, marking the second-straight quarter where its revenue totaled less than $1 million.

Trump Media said that it has “sufficient” cash to fund the business “for the foreseeable future.” The company listed a cash balance of $274 million as of the end of March — a sum boosted by its deal to go public.

FDIC Chair Martin Gruenberg will resign following a scathing investigation that detailed a toxic workplace

Martin Gruenberg, head of the Federal Deposit Insurance Corporation, will step down following a scathing independent investigation detailing pervasive sexual harassment, discrimination and bullying at the agency charged with regulating the banking sector, reports my colleague Elisabeth Buchwald.

“In light of recent events, I am prepared to step down from my responsibilities once a successor is confirmed,” Gruenberg said in a statement on Monday. “Until that time, I will continue to fulfill my responsibilities as Chairman of the FDIC, including the transformation of the FDIC’s workplace culture.”

Gruenberg’s announcement of his intent to resign comes hours after Sen. Sherrod Brown, a top Democrat who leads the Senate Banking Committee, called for “new leadership” at the FDIC. Gruenberg joined the FDIC board of directors almost two decades ago. He’s served as chair of the agency for nearly 10 of the past 13 years.

The FDIC commissioned a report by law firm Cleary Gottlieb Steen & Hamilton, which ultimately spurred Gruenberg’s resignation. It confirmed the findings of a November Wall Street Journal investigation revealing a long-standing problematic culture. It did not find that Gruenberg alone was responsible for the issues described in depth in the report based on interviews with over 500 employees.

However, it documented several instances where Gruenberg lashed out at subordinates “particularly when being delivered bad news or conveyed views with which he disagrees.” That caused staffers to delay delivering news they feared would upset him. Gruenberg’s temperament “may hinder his ability to establish trust and confidence in leading meaningful culture change,” the report added.

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Additional reporting by Samantha Delouya.

Article Topic Follows: cnn-opinion

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