There has been no lack of prophets of doom about America’s finances (including around here), but it is worth paying attention to what Jamie Dimon says.

There is a grim inevitability about bringing out this old Ernest Hemingway quote, but here we go:

“How did you go bankrupt?”
Two ways. Gradually, then suddenly.”

I’ve written before about attending a talk by a very senior Wall Street veteran in the immediate aftermath of the financial crisis. He was focused on the size of U.S. government debt (about 75 percent of GDP). However, the most worrying part of what he had to say (a tough contest) was that there would be a point when the market cracked and investors would no longer be prepared to lend to the U.S. (other than at exorbitant rates). The clouds would have been darkening for a long time, but the exact moment when investors decided that they had had enough was unpredictable. One day everything would be “fine,” the next it would not be.

With that in mind, here’s Jamie Dimon, CEO of JPMorgan Chase, quoted in the Wall Street Journal from a couple of weeks back:

“You are going to see a crack in the bond market, OK?” Dimon said during an interview at the Reagan National Economic Forum in California. “It is going to happen. . . .”

Regulations imposed on banks after the 2008-09 financial crisis have left them with less flexibility to hold bonds and other securities on their balance sheets. That makes it difficult for financial firms to step in between sellers and buyers when credit markets freeze up, Dimon said.

Treasury Secretary Scott Bessent and other banking regulators have pledged to loosen capital requirements to let banks hold more Treasuries.

Followers of the eurozone’s long nightmare know that, if the effort to stabilize the market starts running into trouble, a “doom loop” can kick in. To oversimplify, if the value of government securities that the banks have bought in order to prop up the market keeps going down, that can wreak havoc with their balance sheets. This then adds a bank crisis to a debt crisis. With their fire power evaporating, banks slash their lending, the economy sinks into even deeper trouble, and so it goes on. . . .

Like the speaker I heard all those years ago (and just because it was years ago, that’s no reason for complacency), Dimon doesn’t know when the crisis will hit:

Without substantial changes, the U.S. is headed for a reckoning, Dimon said. “And I tell this to my regulators . . . it’s going to happen, and you’re going to panic,” he said. “I just don’t know if it’s going to be a crisis in six months or six years.”

There has been no lack of prophets of doom about America’s finances (including around here), but it is worth paying attention to what Dimon says. The company he runs has a great deal of skin in the game and so does he. He has to strike the right balance. On the one hand, he can take advantage of his position to get people to pay attention, but on the other hand, spooking the market too much is not going to help JPMorgan.

Sadly, he appears to be afflicted with that dread new disease diagnosed by Scott Bessent, “Tariff Derangement Syndrome” (rolls eyes):

Earlier [in May], [Dimon] said stock investors weren’t adequately accounting for the impact of Trump’s tariffs, given the market’s rebound from its lows at the start of the trade war. “It’s an extraordinary amount of complacency.”

Via Bloomberg’s Aaron Weinman and Lisa Abramowicz, veteran bond investor Jeff Gundlach, CEO of Doubleline (which has around $93 billion under management):

America’s debt burden and interest expense have become “untenable,” a situation that may lead investors to move out of dollar-based assets, according to DoubleLine Capital’s Jeffrey Gundlach.

“There’s an awareness now that the long-term Treasury bond is not a legitimate flight-to-quality asset,” the veteran bond manager said Wednesday in an interview at the Bloomberg Global Credit Forum in Los Angeles. A “reckoning is coming.”

Gundlach struck a warning note (rightly, in my view) about the private credit market, a market segment where problems can be swept under the carpet, but in a tough climate, not for ever. Gundlach compares private credit with the state of the CDO (collateralized debt obligations) market just before the financial crisis. Private credit markets have been outperforming of late. If they run into difficulties, the question then becomes who has been lending to the suppliers of private credit.

Meanwhile, Weinman and Abramowicz report that:

DoubleLine and peers including Pacific Investment Management Co. and TCW Group Inc. have been avoiding the longest-dated US government bonds in favor of shorter maturities that carry less interest-rate risk in the face of spiraling federal debt and deficits.

Gundlach has now swung behind gold, no longer apparently an asset for “lunatic survivalists” (rude!) and speculators. He notes, “Money is not coming into the United States, and gold is suddenly the flight to quality asset.”

That’s not great news for the dollar, and it implies that the U.S. will have to pay more to borrow. If the dollar is falling, that adds to the risk for foreign buyers of Treasuries, and they will charge a premium for that. On top of that, the greater the credit risk that the U.S. is perceived to be, the higher the price that investors will demand to lend to it. The less that that higher risk can be offset by the comforting thought that the U.S. is the ultimate safe haven, the higher that higher borrowing cost will be, something that only adds to a debt burden that the country cannot safely afford.