JPMorgan Sounds Alarm On Size Of US Debt, Warns Of Financial Crisis

Tyler Durden's picture

After yesterday Goldman mocked Trump's budget (ironic as it was Trump's ex-Goldman Chief Economic Advisor who conceived it) and said it had zero chance of being implemented, today it was JPM's turn to share some purely philosophical thoughts on the shape of future US income and spending, which as we learned yesterday could balance only if the US grows for 10 years at a 3% growth rate, something it has never done, while slashing nearly $4 trillion in in spending, something else it has never done.

What caught our attention in the note by JPM's Jesse Edgerton was his discussion on the thorniest issue surrounding the US: its unprecedented debt addition, what America's debt/GDP will look like over the next 30 years, and whether there is any chance it could decline as conservatives in government hope will happen.

The answer to the final point according to JPMorgan, is a very resounding no, or as the bank politely puts it, "Despite this week’s budget proposal, legislative changes that would reverse debt growth look unlikely to us." Translated: US debt is never going down again.

Here's why:

As the US population ages in the coming decades, federal government spending on Social Security and Medicare are set to grow as a fraction of US GDP. Meanwhile, our current tax system is expected to collect a roughly constant fraction of GDP in revenues. Thus, deficits and debt will likely grow over time. The Congressional Budget Office (CBO) currently projects that the ratio of debt to GDP would reach an  unprecedented 150% within 30 years under current law (Figure 1).


Figure 1 shows the CBO's central projection for the ratio of federal debt held by the public to GDP under current law. (Debt “held by the public” excludes government trust fund holdings, includes foreign and Federal Reserve holdings, and is currently about $14.4 trillion.) The 2016 level of 77% is the highest in history outside of the World War II era. This debt ratio is projected to reach a new all-time high of 107% by 2035 and 150% by the end of the 30-year forecast horizon in 2047.

An interesting aside from Edgerton: is it worth even worrying about debt:

It is debatable how much these projections should cause immediate concern. Many (though not all) economists would agree that it can be appropriate for borrowing and debt to increase when the economy is weak to provide offsetting fiscal stimulus. Once the debt is on the books, there may be no inherent reason it cannot be serviced in perpetuity and never paid back. Even the extent to which we should be concerned about the debt placing a burden on future generations is unclear— if the debt is largely internal to the US, servicing or repayment ultimately involves some future Americans writing checks to other future Americans. And if future generations will be richer than we are due to economic growth, perhaps it makes sense to try to get them to pay for our retirement.

Once this rhetorical musing is past however, JPM shares is a rare admission for a bank that a record debt load may actually be a bad thing.

To be sure, it is debatable how large a problem this debt growth represents, and long-run debt projections are highly uncertain. But, in our view, large deficits and debt likely place some burden on future generations, reduce capital formation, and create some small risk of financial crisis. Thus, there are solid arguments why we should aim to reduce debt ratios from current high levels when the economy is at full employment, as we believe it is now.

Such somber evaluation of the nation's debt crisis: our compliments. Unfortunately, it is what JPM says next that is worse, because it too is spot on: the reason why debt will never again decline.

Although the administration’s budget proposal purports to reduce debt growth, we currently see little appetite in Washington for the tax increases or spending cuts that could achieve this outcome. Our baseline forecast still includes a modest deficit-financed tax cut that would push in the opposite direction.

JPM's dour conclusion:

With the unemployment rate now at 4.4%, solidly below our 5% estimate of its natural rate, we see no reason for fiscal policy to try to boost the economy right now—in fact, it would make more sense to slow it down. And we do tend to think that high borrowing and debt levels have long run costs: they likely reduce national saving, burdening future generations with external debt, and compete with the private sector for funds, reducing capital formation. Plus, an ever-growing debt ratio brings at least some small risk that investors would eventually grow concerned about the safety and soundness of US debt, feasibly triggering a rapid and destabilizing repricing.

We don't know if JPM's gloomy assessment is right, but one thing we are certain of: the last bolded sentence is one which nobody will think twice about, until it is far too late to do anything to prevent it from happening. Here's why:

What could this look like in practice? Well, simple arithmetic shows that reducing deficits requires either higher revenues or lower spending. Higher revenues could come from either increasing tax rates or boosting incomes through channels like labor force participation, productivity growth, or immigration. (We note that we do not see any evidence that reducing tax rates would induce enough additional income growth to increase tax revenues.) And lower spending could similarly come from direct cuts or from other channels like reducing demand for safety net spending or slowing growth in medical costs. But as  discussed above, the chance of changes like these being enacted in the coming years looks low to us.

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Bay of Pigs's picture

Fuck JPM. Den of thieves.

gigadeath's picture


nope-1004's picture

Another lie from JPig.  Here's the truth:

Despite this week’s budget proposal, legislative changes that would reverse debt growth look unlikely to us because we are insolvent and will cease to exist if the taxpayer umbilical cord is cut.


espirit's picture

Print, Bitchez.

I double dog dare you.

CJgipper's picture

Can't tell if serious.  The printing is coming.  Long crypto, gold, food, water, commercial equipment..........

OverTheHedge's picture

The printing is coming?

It's not here already?

I can remember 25% OFFICIAL inflation rates, in the not too distant past. No reason why it won't happen again. The exciting bit is when the rate goes over 100%. Or 100,000%. Hard to tell the difference at that point.

Reality Creator's picture

1) Debt will never be paid back or meaningfully serviced, it will always grow from here on out. When it is at its maximum size before imploding like a star dies into a black hole, the FED should end the dollar and create dollar 2.0 in one simultaneous instant using the original debt as a precious mineral resource like gold to back the new dollar 2.0. In this scenario, those who were in the most debt get less dollar 2.0's and those with the most credit get more. By doing this, the debt is gone but we have not changed the relative wealth between individuals.

OK, nuts, but, like, yeah...just wait...Or,

2) Create an algorithm run by a quantum supercomputer, or a prairie full of these machines, and figure who owes what to whom, such as A owes to B who owes to C who owes to A and D, and D owes to B and A, etc., and then cancel out debt where possible, so that in the end there are fewer debtors and creditors, and those remaining have less debt and less credit on the books. In the process of doing this restructure entitlement programs and amend the US Constitution to permit running the algorithm whenever the debt to GDP ratio reaches a certain point, and should the algorithm ever fail to work, enact #1 above.

Pass the quaaludes.

marathonman's picture

That's the thanks we get for bailing out those lousy SOB's!?  Now they're going to scream that we have too much debt?!  Wasn't it that traitor Ben Bernanke quantatively easing us into that mountain of debt to keep the financials in control and to keep the debt Ponzi from unraveling on them?  Go to Hell JPM and Jamie Dimon.

Croesus's picture

They're ALL thieves, and deserve to be beaten, hung, decapitated, set on fire, have a stake driven through their hearts, tortured, tarred and feathered, shot, fed into a wood chipper, drawn and quartered, and fed alive to sharks.

Bankers, politicians, and judges.

Fashy_Farmer8814's picture

... and lawyers and bureaicrats and (((elites))) whp are 

Fashy_Farmer8814's picture

... and lawyers and bureaicrats and (((elites))) who make up a large majority of those professions.

yogibear's picture

More like 300% rather than 150%.

The Federal Reserve loves debt.

Debt to infinitity in a finite system until it collaspes.

HRClinton's picture

Donald the Chump Trump thought that Mnuchin and Cohn joined hid Administration to help him MAGA.

LOL. They joined to help themselves

Those tax free stock options for (((Club))) members sure are great to monetize.

Stuck on Zero's picture

Debt numbers are BS. GDP is BS. All made up fake data.

Thought Processor's picture




More like parabolic.  There is nothing quite as corrosive as compounding debt.  The math says it's well beyond the point of no return.  But then no one pays any attention to math anymore do they.

Peacefulwarrior's picture

Finally a real headline from a bank. We're just missing Porky Pigs Aba Di "Thats all Folks!

Callz d Ballz's picture

"US Debt Is Never Going Down Again"

US is going down.

HRClinton's picture

Correction: 90-95% of the US is going down.

The rest will be fine.

The 90-99 percentile are there to firewall the  <0.1%

LouRukeyser's picture

"Even the extent to which we should be concerned about the debt placing a burden on future generations is unclear— if the debt is largely internal to the US, servicing or repayment ultimately involves some future Americans writing checks to other future Americans."

If this is only about selectively and randomly "writing checks between Americans" remind me again why I pay taxes?

rf80412's picture

Taxes are a legacy of the days when it didn't work like this.

But if you're going to go the public debt-fueled growth route, you need to go all the way with it and do full MMT.  The sovereign spends money into existence to pay for goods and services it consumes, and the only reason to take money out of circulation (via taxation) is to control inflation ... which if we follow the same logic behind mining gold - i.e. money creation corresponds 1:1 to economic activity - should never be necessary.

logicalman's picture

I guess that means rates are never going up again?


yogibear's picture

You got that. Federal Reserve keeps buying debt. Larger amounts each time.

Let it Go's picture

At one time a billion dollars was a massive amount of money and it still is. Most people that have not thought about it might not think so considering how modern media and politicians throw the "B" word around. A million is a large number so the magnitude or difference between billion and million is very important.

To put it in perspective think in terms of someone working every year from the age of 20 until they are 60 making $25,000 a year. Their total income over their life would be one million dollars. Below is an article that attempts to bring into focus the massive size of a billion dollars.

logicalman's picture

$ Trillions.

One Trillion Dollars $1,000,000,000,000 - If you spent one dollar per second, in a day you would spend $86,400. Over the course of a year, your spending would come to more than $31.5 million. At that rate of spending, it would take you over 32,000 years to spend one trillion dollars. (A trillion = 1000 billion.)


. . . _ _ _ . . .'s picture

Or about one million per day for 3,000 years. (Easier to remember.)

logicalman's picture

- .... .- -. -.- ...

-- ..- -.-. ....   . .- ... .. . .-.

BeepBeepRichie's picture

Thats also a pretty good graph to indicate when the next giant war is.. graphical double entendre 

KFBR392's picture

someone gets paid mid six figures to state whats fucking obvious to everyone. only building a wall and stemming the inflow of future entitlements could save us. fat chance on that...

. . . _ _ _ . . .'s picture

It's actually much simpler than all that.

Debt will never decrease because decreasing debt means decreasing GDP. Period!

To reduce debt, America would have to voluntarily go into recession.

No debt, no growth. The USA is locked into this paradigm. Nothing can stop it or stem it or save you. The entire economy depends on debt.

Debt = growth = GDP = debt...

The rest is just filler.


Hohum's picture

Ladies and Gentlemen, we have a winner!

. . . _ _ _ . . .'s picture

The central banks have already achieved their aims to create debt slaves of us all.

The only alternative to being beholden to the banks for perpetuity is to destroy your entire debt-based economy.

What politician in your 'democracy' would win an election on that platform?

Higher interest payments, increased wealth gaps, and lots of austerity await.

Revolution and re-establishment of your Republic is the only way out.

On the bright side, there is no need to visit Greece anymore. Greece will come to you.

HRClinton's picture

Winner, winner, chicken dinner!

Ye be Debt Serfs on the National Debt Plantation. As are Serfs in other countries with fiat currency. 

The purpose and goal of Globalism, is to turn the entire planet into a Debt Planet. There will be no escape for you or your descendants, if this is not ended with force in the next few years.

Don't say I didn't warn you. 

Synoia's picture

It is not debt. The US Government does not borrow. It is money, in accounts, issued by the Government.

One set of accounts pays interest, some called T Bills.

The other set of accounts does no pay interest and is called money.

Tbills and money are easily interchanhe, and thus fungable.

bluskyes's picture

How does the static qty of money pay back the ever increasing interest?

logicalman's picture

If the fuckers can just print what they need, what's with all the taxation??

There's a big clue regarding debt and the monetary system in there, if you start to poke around a bit.


peippe's picture

taxation is a fee attached to behavior,

someone is collecting money from you because of something you did. 

it's simple. it's like a penalty. Enjoy.

espirit's picture


Do nothing, pay no tax.


It’s so easy even a dindu can do it.


Due North's picture

......only perform work where one has no obligation to utilize a tax ID or SS#. I have become a pro. 

logicalman's picture

I'd rather be billed for a service received than taxed for 'services' I want no part of.

Income tax is the bastard child of robbery and extortion.

The only half-way reasonable form of taxation is excise tax, but even that's a stretch.

Hohum's picture

Massive debt may be a bad thing but eliminating it would be worse.  Quite the predicament.

WillyGroper's picture

the interest is bullshit anyway.  

end the fed.

we been robbed blind.

AustrianJim's picture

So JP Morgan just figured this out?

Swamp Yankee's picture

Long on silver.


Long on nailguns.


Short on lying, theiving, backstabbig, rent-seeking chuds.

vegas's picture

It's all a Ponzi scheme scam; always has been. The only thing we don't know is exactly when the gig is up and the country goes Venezuela. The only sure thing is, is that it will happen.

gcjohns1971's picture

You've got to be kidding.

The debt has never gone down since the Fed was created.


And if you understand that the Fed uses debt to secure the issue of notes on a fractional Reserve basis you MUST understand that the only way for debt to contract is through a currency crisis. And you understand that any instance of debt contraction, currency existing at a multiple to debt, will induce currency crisis.

Really.  This is as simple as 2 + 2.

People don't understand because they don't want to.

Friedrich not Salma's picture

I'm not retired but for this:
"perhaps it makes sense to try to get them to pay for our retirement."
Fuck that guy!

JamesinNM's picture

Debt will go to zero when the creditors are eliminated.

rf80412's picture

Butbutbut that would mean letting all the deadbeats off the hook!  No rational value maximizer would ever loan money again!

Pft's picture

Under the current system no debt means no money