Get ready for an economic "hurricane," warns JP Morgan CEO

Aren’t we in a hurricane now? You ain’t seen nothing yet, JP Morgan’s CEO warned yesterday. “Right now,” Jamie Dimon told a conference audience yesterday, “it’s kind of sunny, things are doing fine.” That might be news to American families who have had their buying power drained by runaway inflation and shortages at the grocery stores.

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Dimon wasn’t talking to average working-class Americans yesterday, however. He wanted to warn investors that the days of wine and roses would soon come to an end, and likely sooner than they think. “You’d better brace yourselves”:

The big worry for Dimon is the Federal Reserve, which has decided to end the era of free money for Wall Street. Dimon doesn’t think that investors fully appreciate what that means yet:

There are two main factors that has Dimon worried: First, the Federal Reserve has signaled it will reverse its emergency bond-buying programs and shrink its balance sheet. The so-called quantitative tightening, or QT, is scheduled to begin this month and will ramp up to $95 billion a month in reduced bond holdings.

“We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years,” Dimon said. Several aspects of quantitative easing programs “backfired,” including negative rates, which he called a “huge mistake.”

Central banks “don’t have a choice because there’s too much liquidity in the system,” Dimon said, referring to the tightening actions. “They have to remove some of the liquidity to stop the speculation, reduce home prices and stuff like that.”

Dimon’s also worried about the Russia-Ukraine war and its potential impact, especially in Europe. The Biden administration has not acted strategically to cushion Western economies from the impact of the war, Dimon warned, especially if the war takes a turn for the worse:

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Dimon said “wars go bad” in suggesting that the Fed’s interest rate hikes could backfire and lead to a recession.

He also said the U.S. should do more to protect European economies that are being hurt by the fighting over Russia’s oil and gas supplied.

“We’re not taking the proper actions to protect Europe from what’s going to happen to oil in the short run,” he said.

We had elasticity in our domestic production capability when Joe Biden first took office, and therefore had plenty of influence on global oil prices. Biden demolished that as an explicit part of his energy strategy, hoping to force the US off of fossil fuels. That strategic blunder left Biden without any leverage against Russia or Iran and gave them a windfall on global oil markets as prices soared. Now we are having so much trouble getting prices back under control that Biden has gone hat in hand to producers like Saudi Arabia and Venezuela begging for more production. Dimon’s right to be concerned about the economic impacts of that strategic blunder, but the economic impacts aren’t the worst aspect of Biden’s policies, even as bad as those impacts are. It has made us much less capable of containing Russia and Iran.

OPEC has decided to help out — a bit:

OPEC+ agreed to increase the size of its oil-supply hikes by about 50%, in a deal that kept Russia at the heart of the cartel while also heeding pressure from major consumers including the US.

Ministers approved production increases of 648,000 barrels a day of oil for July and August, up from recent monthly hikes of 432,000 barrels a day. Russia gave the plan its full backing and talks were concluded in a record time of just 11 minutes, delegates said, asking not to be named because the information was private. …

“This is a pretty minor tweak, but it is a nod toward looming tight balances later this year when the EU sanctions on Russia start having an impact,” said Bill Farren-Price, a director at Enverus Intelligence Research. “The question is whether there is any more in the OPEC tank?”

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Let’s just look at the potential of the total increase rather than the change. The US consumes about 20 million barrels of oil a day. An increase of daily production from OPEC of 650,000 barrels would amount to forty-seven minutes of consumption in the US each day.

Dimon’s right to be concerned about the hurricane. He should be more concerned about the blowhards who are going out of their way to make it worse.

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John Stossel 1:00 PM | June 15, 2024
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