CEOs Are Increasingly Concerned About the National Debt

The total public debt outstanding of the U.S. government has grown by $7.4 trillion since the end of 2020. That’s causing a lot of concern for the CEOs of foreign financial institutions, who don’t see it as a risk-free investment.

But what about the chief executive officers of major U.S. financial institutions? These leaders of banks and investment firms routinely acquire billions of U.S. treasury bills and notes every year. How do they perceive the risk posed by the increase in the U.S. national debt?

“There will be a rebellion”

JPMorgan Chase CEO Jamie Dimon, who runs the largest bank in the U.S., is worried that “hockey stick” growth in national debt may trigger a debt rebellion in global markets. Fortune’s Eleanor Pringle reports on his January 2024 comments to the Bipartisan Policy Center:

He drew on the comparison of the 1980s for context explaining in 1982 unemployment was sat at around 10% while the stock market had sat stagnant for 15 to 20 years. Even with the Vietnam War, America’s debt-to-GDP ratio was around 35%, Dimon said, whereas today it sits at 100%.

“Back then the deficit during a recession—you do spend money in a recession—was 4% or 5%, today it’s 6.5% in a boom time,” Dimon continued.

He added: “If you look at that 100% debt to GDP by [2035] I think it’s going to be 130% and it’s a hockey stick. That hockey stick doesn’t start yet but when it starts markets around the world… there will be a rebellion.”

Dimon’s “hockey stick” scenario could occur as the American government faces higher charges to service increasing levels of debt, potentially in an economy which many are predicting will enter a slow or no-growth era.

“You can either admire the problem or do something about it”

Brian Moynihan is the CEO of Bank of America, who successfully turned the institution around after it nearly failed in 2008. Fortune‘s Eleanor Pringle reports on the comments he made about the national debt in a February 2024 podcast:

Speaking on Teneo’s Insight Series podcast released Feb. 5, Moynihan said: “We’ve got to start paying attention not only in this country but around the world to debt levels as a percentage of GDP.”

For the fiscal year of 2023, America’s debt to GDP ratio reached 123% according to the Treasury website. It surpassed 100% for the first time in 2013 when both debt and GDP were approximately $16.7 trillion.

In June the Congressional Budget Office warned this balance could tip to 181% of GDP by 2053, driven by huge interest payments as well as greater demand for social security and healthcare support.

“We need to start to think about how to change the curves around—so more revenue, less expenditure, some combination of both—but you have to start to bend that curve out in the future,” Moynihan told podcast host Kevin Kajiwara, co-president of political risk at the global advisory firm. “People recognize you can admire the problem or you can do something about it, so we have to get after that.

“Irresponsible”

Ken Griffin is the founder and CEO of Citadel, a hedge fund with billions of assets under management. In April 2024, the New York Post covered his comments on the topic in his year-end letter to his customers:

“The surging US public debt is a growing concern that cannot be overlooked,” Griffin, founder and CEO of Citadel, penned in his 2023 year-end investor letter released Monday. “We must stop borrowing at the expense of future generations.”

Historically, increases in the national debt—which is currently hovering at $34.58 trillion— are driven by high unemployment rates, plus the decreased tax revenues and increased government spending on stimulus programs that come with it.

The current unemployment rate of 3.75%, however, is between 3% and 5%—largely considered a reasonable range—and doesn’t justify the government spending that has been taking place, according to Griffin.

“It is irresponsible for the US government to incur a deficit of 6.4% when unemployment is hovering around 3.75%,” he wrote.

“An already unsustainable debt servicing bill”

Larry Fink is the CEO of BlackRock, the world’s largest investment management and financial services firm, with over $10 trillion in assets under management. In July 2024, he posted his annual letter to shareholders, in which he emphasized that the interest the U.S. government is paying on the national debt is already unsustainable:

Why is this debt a problem now? Because historically, America has paid for old debt by issuing new debt in the form of Treasury securities. It’s a workable strategy so long as people want to buy those securities—but going forward, the U.S. cannot take for granted that investors will want to buy them in such volume or at the premium they currently do.

Today, around 30% of U.S. Treasury securities are held by foreign governments or investors. That percentage will likely go down as more countries build their own capital markets and invest domestically.

More leaders should pay attention to America’s snowballing debt. There’s a bad scenario where the American economy starts looking like Japan’s in the late 1990s and early 2000s, when debt exceeded GDP and led to periods of austerity and stagnation. A high-debt America would also be one where it’s much harder to fight inflation since monetary policymakers could not raise rates without dramatically adding to an already unsustainable debt-servicing bill.

A common theme

It’s safe to say that none of these top U.S. financial institution leaders see the U.S. government’s debt as risk-free.