Jamie Dimon presented a prescient case against socialism, not only as it pertains to emerging sentiment in the Democratic Party, but also to its immediate ramifications abroad.
“I think we ought to educate younger kids — freedom and free enterprise are inextricably linked, they’re not different,” he said. “I mean, you can’t tell people where you can work or how you’re going to work, where are you going to — free enterprise was the pursuit of happiness. And, you know, once you have governments taking control of businesses, it ends up in corruption, in Venezuela and — and it rose over time because companies get used for political purposes, not to give you great products and services.”
Although Dimon declined to weigh in on the specifics of the 2020 race, Bernie Sanders rightly viewed himself the target of the JPMorgan Chase CEO’s warning about the economic system he said would “erode society.”
That’s funny. Jamie Dimon seemed fine with corporate socialism when his bank got a $416 billion bailout from American taxpayers. https://t.co/KYhvG2kVvt
— Bernie Sanders (@BernieSanders) January 22, 2020
Note that, contrary to the septuagenarian socialist’s assertion, JPMorgan Chase accepted only $25 billion in Troubled Asset Relief Program funds, as mandated by the federal government, and repaid it in full once given the green light by regulators.
Dimon argued that our strong consumer-fueled economy, which he noted would likely improve even further thanks to the United States-Mexico-Canada Agreement and the China trade deal, probably grew at half the rate it could have last decade. He blamed bad regulatory, tax, and infrastructure policy. But more alarming to him was the threat posed by increasingly centrally planned economies abroad.
“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yields and stuff like that,” he said. “It’s kind of one of the great experiments of all time, and we still don’t know what the ultimate outcome is. Do you know anybody who has actually bought a negative interest rate bond? The buyers are central banks and insurance companies or index funds or passive funds. I would never buy a negative interest rate bond, unless I was forced. In history, when you see something like that, it doesn’t necessarily end well.”
Jurisdictions such as the Bank of Japan and the European Central Bank have begun to employ negative interest rates to offset high rates of government spending and stimulate the economy. President Trump has entertained the notion, arguing that negative interest rates give nations an upper hand in currency wars. But Dimon is right to sound the alarm on negative interest rates.
Countries with negative interest rates have tried to game the costs of big government spending by cajoling banks into buying government bonds, creating what Dimon rightly brands a bubble of sovereign debt. The removal of the incentive to invest causes retirement plans to plummet and banks to bust. In countries such as Switzerland, the wealthy have already begun to withdraw from the banking system entirely. Although Sweden, the pioneer of negative interest rates, recently brought its interest rate back up to zero, the ECB has committed to it.
Make no mistake. This is exactly where a President Sanders would want to steer the economy. Although the Vermont senator has remained relatively mum on monetary policy this election cycle, he has stated his support for negative interest rates. He has repeatedly railed against the Federal Reserve for initiating important rate hikes, but most telling was his specific 2015 proposal.
“Since 2008, the Fed has been paying financial institutions interest on excess reserves parked at the central bank — reserves that have grown to an unprecedented $2.4 trillion. That is insane,” Sanders wrote in the New York Times. “Instead of paying banks interest on these reserves, the Fed should charge them a fee that would be used to provide direct loans to small businesses.”
Dimon may refuse to say who he thinks should be president, but he’s made it clear who shouldn’t be.
