Jamie Dimon, head of one of the biggest banks in the world, expressed concerns that what many people think could be an almost worst possible scenario for the U.S. economy is, in fact, a very real possibility.
From Peter Reagan for Birch Gold Group
Jamie Dimon, head of one of the biggest banks in the world, expressed concerns that what many people think could be almost the worst possible scenario for the U.S. economy is, in fact, a very real possibility.
Most people, when they’re trying to find reliable information, look to experts in a given field. Typically, those experts are people with a good deal of education and experience in that field. A track record of success.
For example, if you are looking to build muscle, you would rather get weight lifting advice from Arnold Schwarzennegger than from the skinny teenager living next door. If you want to become a great guitarist, then you might want to get lessons from the lead guitarist from your favorite music group. (And if you want to learn about the benefits of physical precious metals, you ask “Dr. Reagan,” right?)
If you want to learn about the economy, the long-time CEO of one of the five biggest American banks probably knows more than you do. Likely he has some insight into both the banking system, and how the data crossing his desk every day predicts economic developments.
In this case, we’re talking about some things that Jamie Dimon, CEO of JP Morgan Chase Bank said which is, no doubt, shaking some people up. Sarah Min writes,
JPMorgan Chase CEO Jamie Dimon said Tuesday he wouldn’t rule out stagflation, even with greater confidence recently that inflation is coming off its highs.
“I would say the worst outcome is stagflation — recession, higher inflation,” Dimon said at a fall conference from the Council of Institutional Investors in Brooklyn, New York. “And by the way, I wouldn’t take it off the table.”
The chief executive of the largest U.S. bank makes his comments at a time when investors are turning their attention to signs of slowing growth.
Okay, let’s take a step back… Remember a couple of things:
- Big bank CEOs are in the business of promoting a strong economy. The same way you’ll never hear a realtor say the words “housing bubble,” you’ll almost never hear a bank CEO talk about economic contraction. If you remember the Great Financial Crisis, you’ll probably also remember CEOs told us everything was fine right up until they went to Congress begging for bailouts.
- Banks rely on confidence. Because lack of confidence creates big problems… As Bloomberg columnist Matt Levine has said many times, “Banks need your trust because they don’t have your money.”
So what’s got Dimon so spooked he’s crossed the line from Pollyanna to Cassandra?
What is stagflation exactly?
Most people who pay attention to the economy have heard the term stagflation, but many people don’t really know what that term means. At least, not in terms of how it would affect everyday life.
So, to clarify, Anna-Louise Jackson put it this way for Forbes:
Stagflation is a period of stagnant economic growth accompanied by persistently high inflation and a sharp rise in unemployment. While stagflation is quite rare—the U.S. has only experienced one sustained period of stagflation in recent history, in the 1970s—it’s become a more frequent topic of speculation.
If you lived through the 1970s, then, you have an idea of what we’re talking about, and if not, imagine this:
- Prices are high, and they keep going higher. You’d like to make more money so that you can afford to keep taking care of your family at the same level as you had been.
- So, you’re looking for a new job to replace the current job whose paycheck isn’t keeping up with the rising costs of what you have to buy for everyday life.
- But jobs are scarce, so you’re scared of leaving your current job. Which means that you aren’t spending money, and you’re saving every penny in case you need it just to buy gas.
- Stress levels are high, and there is no clear hope in sight for this horrible situation to end. And you still have to buy groceries tomorrow.
If that sounds scary to you (and it should), it is because that is exactly the type of everyday life that Dimon thinks is a definite possibility for most Americans in the near future.
That is everyday life in an economy enduring stagflation.
Dimon isn’t the only one worried about stagflation
Regardless of what’s going on in the economy, you can always find a voice or two on the fringe forecasting everything from infinite wealth forever to a Mad Max-esque collapse of civilization. The most extreme forecasts are less interesting than the consensus.
That’s why it’s important that Dimon isn’t alone in noticing indicators that make it look like stagflation is a very real possibility in the near future.
Far from it.
Take a recent analysis by Mike Shedlock noting that the Federal Reserve has some indicators showing that the current economic situation is worse than the beginning of the Great Recession. Shedlock writes:
On Thursday, I noted Small Businesses Reducing Workers for the Last Four Months
ADP data shows small businesses with 1-49 workers have been reducing workers for four months. Those with 20-49 workers have shed workers for 7 straight months.
Hmmm. That must be nothing.
On September 3, I noted Construction Spending Growth Slows in May, Stops in June, Negative in July
Again, that’s nothing.
Also note BLS Negative Job Revisions 15 of Last 21 Months
And the current economic headline conditions are worse than the conditions heading into the 7th month of the Great Recession.
Well, I’m sure that’s nothing too.
That’s right, there are a growing number of indicators that point to the economy rapidly slowing. Very real and solid indicators such as job growth (or lack thereof), the struggles of small businesses and plunging construction spending.
That all seems to point towards the likelihood of stagflation: a return of the nightmare economy of the 1970s.
What does that mean for us?
Ideally, our long-term savings are properly diversified in such a way that our retirement accounts will keep growing in the good times, and endure the bad times without too much volatility.
We want to take risk off the table at the same time we don’t sacrifice performance to do so. (After all, it’s easy to simply sell everything and wait out the bad times in cash, but that means giving up on growth and taking on major inflation risks… As Ray Dalio famously said, “Cash is trash.”)
Thankfully, there is something that you can do to diversify your retirement savings regardless of whether the economy goes completely off the rails or if it miraculously recovers…
You can diversify your savings with assets that maintain their value (in terms of real-world purchasing power) so that you know that you have a safety net regardless of what happens with the economy.
Historically, one of the strongest ways to build that hedge around your future buying power is to put a portion of your savings into precious metals. Doing that can help to give you peace of mind so that you and your family can focus on living your lives today rather than worrying about what might happen tomorrow.
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