JPMorgan chief executive Jamie Dimon has warned that a looming crisis in Washington over raising the debt ceiling could spark “panic” in the markets, a day after Donald Trump implored Republicans to let the US default unless Democrats capitulate to demands for “massive” spending cuts.
The debt ceiling was “one more thing [Trump] doesn’t know very much about”, Dimon said, after the former president and current frontrunner for the Republican party nomination for the White House in 2024 brushed aside concerns about the economic ramifications of an unprecedented default.
“It’s really psychological more than anything else. And it could be really bad, it could be maybe nothing, maybe it’s a bad week, or a bad day, who knows?” Trump said in a televised town hall on CNN on Wednesday night.
The boss of the biggest US bank told Bloomberg TV on Thursday that a default would be “catastrophic”, and warned that as the government gets closer to the fiscal cliff, “you will have panic”.
US Treasury secretary Janet Yellen has warned that the government risks running out of money as soon as next month if Congress does not raise the debt ceiling. On Thursday morning, ahead of the G7 meeting of finance ministers in Japan, she said: “The notion of defaulting on our debt is something that would so badly undermine the US and the global economy that I think it should be regarded by everyone as unthinkable”.
The IMF separately on Thursday warned of “very serious repercussions” in the event of a default at a time when the global economy is already in a “very difficult” position, mired by low growth and high inflation.
“We strongly encourage the parties in the US to come together to reach a consensus to urgently address this matter,” Julie Kozack, director of communications at the multilateral lender, told reporters.
Dimon said JPMorgan had assembled a “war room” to meet once a week to assess the risks related to a potential default. He added the group was likely to meet more frequently as the so-called X-date approaches.
His intervention came as the White House enters crunch talks with congressional leaders in an attempt to avert a default.
US president Joe Biden earlier this week met Kevin McCarthy, the Republican Speaker of the House, and other top lawmakers in the Oval Office in an effort to kick-start negotiations. Biden and McCarthy, alongside Senate Republican leader Mitch McConnell and Hakeem Jeffries, the top Democrat in the House of Representatives, are expected to meet again on Friday.
But the two sides remain at odds over how to lift the debt ceiling, with Democrats calling for a “clean” bill to raise the borrowing limit without preconditions. Republicans insist any raising of the debt ceiling needs to be tied to steep spending cuts.
Trump emboldened rightwing members of McCarthy’s conference on Wednesday when he urged them to let the government default unless the White House agrees to “massive cuts”.
“We might as well do it now,” he added. “Our country is being destroyed by stupid people, by very stupid people.”
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