One of the most powerful bankers in the world believes that this is the most prosperous economy the world has ever seen. People like Rush Limbaugh would also have you believe that anyone who suggests otherwise is a Russian troll or is out to get Donald Trump.
In an interview with 60 minutes, Dimon dismisses concerns about a recession or an economic crisis.
But let’s look at what’s going on in the economy right now.
How Things Currently Look
For starters, the number of CEOs that have stepped down this year has not been this high since 2008 during the financial crisis.
Next, railcar utilization has dropped 36% since its peak in 2014. Why would this be important? Because it is a gauge on how many real goods are traveling across the country. A drop of anything more would put us in the levels of the financial crisis.
Over the past 20 years, college costs have grown 3 times the rate of inflation.
Despite what you may hear in the mainstream, in money terms and in time terms, the average man is poorer today than he was in 1970.
Consumer debt exceeded $4 trillion for the first time this year with rising credit card rates. Buying things with debt does not mean you are prosperous. It means you’re in bondage.
And guess what? Corporations are in bondage too! Corporate debt is now at about $15 trillion, which is a 50% increase from the levels reached prior to the 2008 financial crisis.
This is a ticking time bomb because $4 trillion of bonds come due over the next 5 years. If some of these corporations default, the results could be very similar to 2008.
In fact, Jeffrey Gundlach, known as the “bond king” and CEO of investment firm DoubleLine, said of a coming economic downturn:
“the misery is going to be apparent for a considerable fraction of the population. It’s going to be pretty intense, and the response will be money printing.”
That doesn’t sound great.
So why have companies taken on so much debt?
The rate at which banks borrow money was held artificially low (try 0% interest low) for many years by the Federal Reserve. Corporations and banks (including Jamie Dimon and JP Morgan) used that money to make risky investments (because when you get free money, yolo right?) and to buy their own shares back.
When companies buy their own shares back, it reduces the number of outstanding shares thus making the price per share go up. To those holding the remaining shares (board members, directors, executives, etc.), this increases their wealth. Is the company more productive? Was the company more profitable? Nope! Profits didn’t budge – they just manipulated the price to look better.
Corporations are the biggest buyers of equities in the market by a longshot. Without corporate buybacks, the market would be 10% lower says MarketWatch. At this point, they’re doing everything they can to squeeze out as much return as they can.
The Problem Compounded
It gets even worse when you understand that when the Federal Reserve lowers interest rates, it lowers the rate at which banks pay you to hold on to your savings. So the banks can borrow money basically for free, but then they (the banks) charge you anywhere from 13-25% for a credit card. Additionally, when the Fed lowers interest rates, banks lower the interest they pay you to borrow YOUR money. So the haves get more and the have nots get less. How’s that for fair? It’s no wonder Millennials don’t like this system they think is called capitalism. (This is NOT capitalism.)
When only looking at the stock market and the unemployment rate, it’s easy to see a healthy economy. The S&P 500 is at an all-time high, and the unemployment rate is at an all-time low.
However, many other important economic signals are flashing warning signs. Mr. Dimon is either an overpaid fool or is running interference while his company braces for economic turmoil.
The fact is, the Federal Reserve has already lowered interest rates THREE times this year (which they only do when they see weakness in the economy or when they’re trying to fight a recession) while also pumping in additional BILLIONS of dollars to banks on the daily because the markets are fine, right?
What Will You Do?
Even if the economy keeps chugging along for the next couple of months or years, you must think about this: what are you doing to be ready for an economic downturn? What would you do if you lost your means of income? Are you mentally and physically prepared for tough times?
With an upcoming presidential election that is sure to be more contentious tumultuous than we have seen in recent years, I would not be surprised if a recession strikes before or after.
If you have not thought about these things, it’s time to get moving. This “great economy” isn’t going to last forever. If you want to buy into comments similar to these from the likes of Jamie Dimon, that’s your right. But don’t ignore the obvious risks. Now is the time to come up with a plan if and when an economic crisis rears its head.