New Delhi: Jamie Dimon, the CEO of JP Morgan which is one of the biggest bank in America, is sending a very loud alert on where the US economy is heading over the long term. By his reasoning, the United States may begin to resemble some parts of Europe as far as the current policies persist, which would be characterized by slower growth, lesser new business, and less dynamism in the economy.
Dimon explains that the U.S is already experiencing a precursor to this change, namely excessive regulations, excessive taxes, and policies designed to slow down the growth of companies. These problems, according to him, are the greatest disadvantage to lower-income Americans. As it becomes more difficult to conduct business, it is the small firms that suffer, construction halts and there are no jobs or jobs are not created.
He gives the example of Europe of what can go wrong. Among the Europeans the economic power was much nearer to the American one decades ago, but gradually it fell. He points out that the European contribution to the world economy as opposed to that of the U.S has dropped drastically within the last ten years or so. Dimon thinks America can be facing a similar fate as it did in the last decade unless the situation is reversed.
He goes on to point out particular issues on the local front which includes restrictive building codes, convoluted permitting processes and too much regulatory blue tape. These challenges are driving companies out of states that are less favorable, to ones that are more favorable, which in many cases are lower taxation and less restrictive to investment. He compliments such states as Texas and Florida, stating that they are attractive to companies since they encourage growth instead of limiting it.
The message that Dimon is putting across is a call to action…
cut back red tape, cut excessive taxes, and establish an environment in which it is easier to establish and expand businesses. In his opinion, the U.S. will not gain economic momentum in the coming decades unless it is reformed.
Other Warnings for US Economy:
Dimons worries reflect in the worries of other financial gurus.
According to some analysts, the threat of recession in the U.S is exceptionally high. They do not say that the economy is collapsing, but that it is slowly weakening, and that credit markets are stretched, bond prices are exhibiting worrying trends, the general environment is a soft one.
One of the biggest credit rating agencies has also recently lowered its forecasts on U.S. economic growth. One of the causes is the ambiguity in trade policy that has resulted in complications in planning business.
Trade issues, particularly increased tariffs are posing extra expenses on firms. Certain analysts fear that these pressures may persist in weakening the U.S. economic activity and the world trade.
Dimon’s Most Recent Comment
Dimon in a recent interview said that he is not convinced that the U.S. is going to land in a soft landing. He cautioned that the growth in job could slow, inflation might creep, and a number of economic indicators are likely to become weak in the coming years.
Another thing that he questioned was about the private credit markets. The expansion of the private credit has risen at a fast rate, yet Dimon warns that should the economy reverse, then this field will be particularly risky and quite unsafe to the investors who are hoping to gain steady long-term profits.
Why Dimon says the situation is serious?
Dimon is of the view that the U.S. will lose its economic advantage without significant changes of policy. Thirty years later, he writes, the nation might resemble the current Europe to a much greater extent and that is less progress, less innovation and less chance of ordinary Americans to rise up.
He goes on to claim that tax increases, massive growths in social programs, and even excessively hard regulations, however well-motivated, can backfire. Businesses make fewer investments, move or close down when they are overburdened. In the long run the tax base becomes smaller and it undermines the programs that were intended to provide people with assistance.
Dimon simply points out the following:
- Reduce unwarranted regulations.
- Avoid excessive taxation
- Promote investment and establishment of business.
- Competitive cities and states.
- In his opinion, such places will lose jobs, capital and high-quality workers to adaptable places.
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