From Bonds to Big Beautiful Bill, We're Going Bust
Some major players in the bond market warn of a nearly certain bust today.
Jamie Dimon warns in today’s headlines that the American bond market is going to certainly see some breakage. He’s not sure when but he says the bloated US debt coupled with the irresponsible disability of congress to even face up to what a trillion dollars in interest each year means, assures the bond vigilantes will be busting up business as usual.
Dimon opened his remarks talking about Reagan, who sounded the alarm about the national debt back in the early 1980s when America’s debt to GDP ratio was just 35%. Today it’s 122%. And with each passing year the number becomes even worse.
Dimon warned the audience that “tectonic plates are shifting,” referring to America’s status as the dominant superpower in the world-- which is rapidly slipping.
“The amount of mismanagement is extraordinary,” he said. America has added $10 trillion to the national debt in just five years… and for what benefit? Is the country $10 trillion better off? Did any of that $10 trillion improve the lives of anyone who isn’t in Washington DC?
Just covering the interest payments on the national debt now costs taxpayers more than $1 trillion per year. And if the current trend on rates and deficit spending hold, it will reach $2 trillion per year by 2028.
So, a level of debt that has already caused all major credit agencies to downgrade US credit is on a path to double its cost by the end of President Trump’s term, and yet congress is proposing a behemoth bill Elon Musk, again, described today as a “disgusting abomination” that will explode federal budget deficits:
And that’s from the guy Trump appointed to solve our outrageous deficit problem!
Musk added in a follow-up post that the bill “will massively increase the already gigantic budget deficit to $2.5 trillion (!!!) and burden America citizens with crushingly unsustainable debt.”
Trump’s press secretary responded,
“It doesn’t change the President’s opinion. This is one big, beautiful bill, and he’s sticking to it,” she said.
Musk had earlier said that Big Beauteous Bill undermines everything DOGE set out to accomplish.
One Republican who is a golfing buddy of Trump also torched Big Bountiful Bull, and Trump blasted him for it, just as he did Musk, calling his ideas “crazy.”
"Rand Paul has very little understanding of the BBB, especially the tremendous GROWTH that is coming," Trump posted to Truth Social on Tuesday morning. "He loves voting 'NO' on everything, he thinks it's good politics, but it's not. The BBB is a big WINNER!!!"
Does this porker look like a big winner, sprawling across the US bond universe with his puddling fat? I’ll side with Musk: this pork-filled Bill is a disgusting abomination.
Note to President Trump: Rand Paul is also the man who thought YOUR man, Dr. Mengele Fauci, should go to prison instead of being given the bully pulpit every day of the week with you standing right behind him. If you had listened to your golfing buddy then, maybe there wouldn’t be so many people harmed by the world’s most reckless experiment in medicine, which you praised as your great success.
Because the Republican voices speaking out against Big Bill are few and far between, Dimon is likely right that the wanton spending in Washington right now is going to open up a huge crack in the bond market as Bill seeks financiers to buy him his hamburgers today that he’ll gladly repay some other Tuesday. The government will be going with an expanded appetite to a financial market that is already struggling under the combination of tariffs that diminish the need for Treasuries for foreign exchange and concerns about the latest credit downgrade by Moody’s.
Each time it goes there, it will be driving the amount it needs to ask for in the future even higher by gigantically increasing the base on which its interest payments are calculated. So, the US is in a rapid debt spiral if big, fat Bill can’t stuff the hole, and I don’t see how he will because he IS the hole. The hole was made out of countless Bills smaller than he is that served us the same sugar-coated, delectable politician promises that they would pay for themselves by expanding the economy. It hasn’t worked yet, but I guess there is a crowd still willing to suspend disbelief. The only thing that worked, albeit briefly, was a raise in taxes coupled to an equal cut in spending.
Dimon also sees all this government spending as fueling regrowth in inflation, as I’ve been warning we’d see more of.
Predictably, Trump’s smarmy Secretary of the Treasury, Scott Bessent, said Dimon doesn’t know what he’s talking about and has been wrong in every major economic prediction he’s made. While Dimon has been wrong on a lot of his major predictions, as one of the biggest players in the bond market (JPMorgan Chase is the Treasury’s largest primary bond dealer), I suspect he knows a thing or two about bond market risks.
Bessent also claimed,
the deficit this year is going to be lower than the deficit last year, and in two years it will be lower again.
That sounds like a pipe dream to me. Since Big Bill requires a much larger amount of spending, Bessent has to be imagining a rapid expansion of the US economy this year to offset all that extra spending. He seems to be placing his bets on tariff revenue without factoring in how much tariffs will bring all economic activity down or factoring in the extent to which people will try to avoid purchasing high-tariff items, making high-enough revenue from those high tariffs to cover this huge deficit expansion a phantasmagoric dream.
Dimon also commented on another problem I’ve started warning about—the collapse of the dollar (as one who never worried about it much until these insane tariff wars started popping up, driving everyone away from trade with the US):
If people decide that the US dollar isn't the place to be, you could see credit spreads gap out; that would be quite a problem.
Dimon sees the possibility of people walking away from the dollar as being quite realistic. This gapping up in credit costs comes with a lot more problem than just a debt spiral for the US government:
It hurts the people raising money. That includes small businesses, that includes loans to small businesses, includes high yield debt, includes leveraged lending, includes real estate loans. That's why you should worry about volatility in the bond market.
By itself, it can become an everything collapse, which is why I warned years ago the “Big Bond Bust,” as I called it would be a central part of this collapse. Most credit gets priced off Treasuries of one tenure or another, so the cost of all credit rises outside of the Fed’s control because the term “bond vigilantes” is just another way of saying “market pricing.” The rise of the bond vigilantes means the market has seized control over bond interest from the Fed—that the market simply isn’t buying without a substantial interest boost to offset the wildly rising risks.
You might wonder if Dimon is just talking to protect his own interests, but JPMorgan actually tends to make more money during volatile bond markets:
Market makers like JPMorgan often benefit from volatility, as frequent exchange of assets drives up brokerage fees for their trading desks.
Of course, we’ve seen extreme tariffs flash on and off like a strobe light, and with the court canceling many of them, it’s become impossible to say at this point where the tariff mess will finally end up. I still think we’ll start to see the tariff-based inflation arrive in the early summer, which will force up bond yields to compensate, even as the tariffs reduce bond demand, but I don’g think they will arrive as explosively as I originally thought because Trump and the courts have cancelled all of the worst tariffs; but it’s still not likely to be a summer picnic in bond land.
Other voices barking at Bill
Dimon is not the only loud voice in town barking about the coming carnage in bond world. Ray Dalio is another alarm ringer who has also been wrong in his direst predictions … so far … but it’s worth noting that he’s made a lot of money trading bonds, too. The Wall Street Journal writes,
Sounding the alarm about a debt crisis has been great for companies shilling gold coins and fishy financial products but has made smart, sincere people look silly when nothing happened—financial markets’ equivalent of Y2K.
So why are several suddenly worried? Because the math is getting daunting with interest on the debt blowing past $1 trillion annually and Washington acting recklessly….
Hedge-fund manager Ray Dalio does have something to sell—his book, “How Countries Go Broke,” out Tuesday. But the world’s 172nd-richest person is hardly staking his reputation on royalties, and his arguments are compelling. Dalio told Bloomberg he gives America “three years, give or take a year” to avert an economic “heart attack.”
Peter Orszag, chief executive of investment bank Lazard and a former budget director, wrote last week that “those who bemoaned the unsustainability of deficit spending and debt levels” back during his time in government “seemed to cry wolf—a lot.” Now he’s worried, too, because the wolf is “lurking much closer to our door….”
For perspective, federal interest this fiscal year already will be more than the defense budget and more than Medicaid, disability insurance and food stamps combined.
Estimates for how high interest on the debt will be all assume that bond yields will stay about where they are now. However, if the vigilantes get itchy trigger fingers, the whole scenario can rapidly become worse, allowing less time than Dalio’s figure. That, of course, is the hell that “a crack in the bond market” would open up.
For example:
Former International Monetary Fund chief economist Kenneth Rogoff, an authority on debt crises, explained in April that they “are never a matter of simple arithmetic.”
“Almost every country default—either through outright default or high inflation—occurs long before debt calculus forces it to,” he said.
As this pile-up of risks builds in the normally boring and reliable US Treasury market that has become the stalwart go-to of nations for safe havens, commercial bonds—specifically commercial mortgage-backed securities—are adding their weight to problems banks could face from bond world. Delinquencies in CMBS have spiked to highest level they reached during the bust known as the Great Financial Crisis.
Granted CMBS were followers in that massive banking collapse, not leaders. The lead action was in MBS loaded with defaulting home mortgages, but days of going underwater are coming back in that market, too, as I laid out in my last Deeper Dive. These two kinds of proven-to-be-problematic instruments may not lead the crash this time, but they will certainly add a lot of weight to the downward momentum of collapse.