ENEMY WITHIN: Jamie Dimon's GRAVE Warning On Dollar Decline

We are lucky to be joined this morning by the chief economics reporter for the Washington Post, the one and only Jeff Stein. Great to see you, sir. Hey, thanks for having me uh back.

Yeah, of course. Anytime. Um let's go ahead and put your latest reporting up here on the screen about Wall Street's concerns with regard to Trump's big beautiful bill.

Your headline is Wall Street warns Trump aids the GOP tax bill could jolt bond markets. And if there's one thing we've seen in this Trump administration, it is the significance and importance and power that the bond markets wield. So tell us what you're hearing here.

So the core of the problem here is that you know US interest rates are already very high and the tax bill could add between you know estimates vary2 to5 trillion to the deficit. And what that means is the US Treasury Department will have to go out and auction more bonds, auction more debt to cover up the gap between what the US government spends and what it brings in in revenue. The problem is that we've already seen that there's a question about the demand among investors worldwide for these US assets.

And the big problem potentially, and you know, it's really hard to know exactly what could happen, but what Wall Street is concerned about, what they're telling us and what they're telling the Trump administration, is that if demand for new Treasury debt, these new bond issuances, is insufficient, you could see basically the US government have to increase the premium, the yield it's called, on what investors recoup in return. So if there's an insufficient demand, the price goes up. basically what the US government has to pay to get people to buy this debt goes up and then you can get a really dangerous spike or spiral where borrowing costs rise because the the um the the premium that the government has to offer continues to increase.

And so that's the the core concern here. And and just to I know it sounds probably not that um relevant for people's day-to-day lives, but mortgages, auto loans, things throughout the economy are tied very fundamentally to the price of the bond. And as the yield prices of the new bond goes up, the prices of old bonds collapses.

So that means if you are someone who has put a lot of money in your portfolio into bonds that part of your portfolio could significantly lose its value and that's traditionally considered a very safe investment right like equities stocks that's the risky thing crypto is the riskiest bonds is supposed to be what's safe and that's the reason that that bonds are sort of the core pillar of the global financial system $30 trillion in US debt is used to borrow against trade against um to to have you know millions of people retirees safeguard their their retirements and their assets and so Wall Street is very worried about a potential destabilization in that market in that sector. And Jeeoff, I want to get your reaction to this clip of Jamie Diamond. Uh we can go ahead and roll the second element uh and we'll get Jeff's reaction on the back side of it.

Biggest one underlying both that is the enemy within. I I'm not as worried about china is an is an is a potential adversary. They're doing a lot of things well.

They have a lot of problems. What I really worry about is us. Can we get our own act together, our own values, our own capability, our own management.

What you heard today on stage was the amount of mismanagement is extraordinary by state, by city, for pensions, for and that stuff is going to kill us. And you know, I always get asked this question, are we going to be the reserve currency? And no, you know, if we are not the preeminent military and the pre-minent economy in 40 years, we will not be the reserve currency.

That's a fact. Just read history, you know. Now, I think we will be, you know, Warren Buffett here would tell you we're enormously resilient.

I agree with that. I think this time is different. This time we're, you know, we we have to get our act together and we have to do it very quickly.

And so, Jeeoff, I want to actually that last sentence he just made, that that last statement he just made where he says, "This time I think is different. " That's really interesting with your reporting. So, that was Diamond on Friday at the Reagan National Economic Forum.

And Jeff, why is it that people like Jaime Diamond still, even after weeks of the taco conversation, um feel like this time truly is different? Is it because they see people like Scott Bessant and Donald Trump as as wanting uh continuing to want to remove the dollar as the world currency? Is is that what's really going on behind all of this?

Um yes. Just I'll get back to that question in one second. I couldn't go without pausing for a second to comment on Jamie Diamond and someone from Wall Street saying, you know, criticizing mismanagement of state and local governments when it's been what, you know, a little less than two decades since Wall Street literally crashed the global economy and the worst crisis since the Great Depression.

I mean, the guy the guys um on Wall Street have, you know, their their uh their willingness to say what they think uh and be uh heedless of their own reputations is kind of never Speaking of speaking of enemies from within takes one to no one. He was worried about pensions. Yeah, it's it's to go back to your question.

Um there has been I think a very interesting shift from the core locus of concern on Wall Street being the tariffs, which are still um I wrote it down here. The effective tariff rate is still eight times what it was before Trump took office. We've seen a huge spike in trade tensions, but he has um backed off um due to the the taco trade.

This is the Trump always chickens out uh joke that's that's spread on Wall Street. Um but but you know despite how big that disruption is, people are now more concerned about about the tax bill and what it could mean, especially when coupled with the trade bill. Um, you know, one thing I think is very clear in that clip, or it's clear to me at least, there's a lot of people on Wall Street who want to tell reporters and tell others that they're very worried about the impact of the tax bill on the bond market.

What they don't want to do is go out in public and say, "Hey, Trump administration, we have concerns with your top economic policy priority. " Because they don't want to be in the Trump administration's crosshairs. So, you're seeing Diamond and others go around saying, "Oh, we got to be really careful about the bond market.

" Um, also, you know, the tax bill has some good stuff, has some bad stuff. We need to be careful with bonds. But that that's a that's kind of how they're trying to square the circle here.

They're issuing increasingly vocal warnings about the bond market as, you know, the Senate is taking up this bill. But they're not they're not out in front of criticizing the Trump administration and the Republican party about it because, you know, for obvious political reasons. Yeah.

Well, and the bond market is what got Trump to move off of his most maximalist tariff position. So, I think they've also identified like a potential weakness an area where, you know, if they just come out and bash Donald Trump, yeah, I'm not like defending these people in their cowardice, but they're thinking, okay, strategically, if we just go out and bash Donald Trump, that's probably not going to get us where we want to go. But he clearly has an interest in what happens with the bond market.

So, maybe if we can make him nervous about that, maybe that will change the landscape. But I mean, the other irony here, Jeff, is like the the $4 trillion that's being added to the deficit is by and large tax cuts for guys like Jamie Diamond. So when they're even like, I don't know, I don't know.

This may go a little too far. That also to me is quite is quite stunning. Now, my suspicion is that they would like to still get their tax cut, but just have much more aggressive cuts in the social safety net um in order to pay for them.

But what do you make of that particular dynamic? I think that's really the right question, Crystal. Um, you know, this bill, uh, does not have the large sort, I mean, it has some, it has, you know, hundreds of billions of dollars, but in in four in a 4 trillion or $5 trillion bill.

Unlike the first tax bill in 2017, which really was centered on massively reducing the corporate rate from 35 to 21%, which the first bill did, this bill really showers cash on households primarily or disproportionately, I would argue, um households with, you know, the highest incomes. Um we have we did a story recently about 30% of the tax cuts go to those with over I think it was three or $400,000. um per year in income.

It it is slightly a different constituency than, you know, the Jaime Diamond, you know, it's it's not necessarily for those businesses on Wall Street themselves. So, I I'm not sure that this tax cut is as attractive of a package to them. I mean, they do have the rate cuts in there.

There are cuts for, you know, um pass through businesses, which, you know, these are people who often have over a million dollars a year in income. There are there's a massive reduction in the estate tax. So, there are things for very rich people, but it's a little less, I think, of a of a grabag for Wall Street businesses and people like Diamond than than the first round of of tax cuts was.

I think you really hit the nail on the head that they want more spending cuts. Um, so obviously, right, if we're talking about the the debt being too big from the tax bill, there's a few options. They can spare they can reduce the amount of tax cuts, but that would require them to either, you know, pair back the amount that that people at the top are getting or really like try to do, you know, even less of the Trump campaign promises on, you know, no tip taxes on tips and no tax on social security.

I don't think given how much of this is already for upper income people, I think it's very unlikely that they move to pair back what is in there for lower and middle inome households. and and that would also be an admission that their tax cuts aren't going to get the growth that they're now saying the CBO is underestimating the growth. That's right.

That's a very good point. They now have been saying like this bill will cut the deficit because it will lead to so much growth in sort of a laughian curve way. Yes.

Um I think on the spending cuts, they do have cuts in there on Medicaid and food stamps, but they're already pretty large. And my sense from talking to Republicans on the Hill is that they they they fear the politics of an even bigger cut to healthcare than they do the politics of the bond market, which could be dicey, but you know, the US has added trillions and trillions and trillions of dollars to its debt over and over and over again. And there haven't we haven't seen the bond market freakout that you know people like uh you know the deficit hawks have been warning about for a long time.

So you know maybe there's still more that they can do without without triggering this sort of panic. So I you know the other thing that that we've written about is that they've entertained I mean Steve Bannon has talked to the president directly we've reported um about raising taxes on millionaires um or at least raising is a bit of an overstatement about basically letting the tax cut that they originally approved for the top income bracket to expire um in 2025. That would basically really get them out of a lot of this bond market chaos they're dealing with.

They don't want to go there because they don't want to raise taxes on the rich and because Republicans hate that. So, right, it is a kind of fascinating thing to look at how they're trying to to get out of this box. All right, let's talk a little bit about China because this is the other big thing that's happening.

Put guys first A5 up on the screen. This was Trump's truth social about China um in which he said two weeks ago China was in grave economic danger. The very high tariff I set made it virtually impossible for China to trade into the US marketplace which is by far number one in the world.

We went in effect cold turkey with China and it was devastating for them. Many factories closed. There was, to put it mildly, civil unrest.

I saw what was happening and didn't like it for them, not for us. I made a fast deal with China in order to save them from what I thought was going to be a very bad situation. I didn't want to see that happened.

Because of this deal, everything quickly stabilized. China got back to business as usual. Everybody was happy.

That was the good news. The bad news is that China, perhaps not surprisingly to some, has totally violated its agreement with us. So much for being Mr nice guy.

Um, can you break down for us, Jeeoff, what is going on here with uh Trump and and China? What the what the reality is? Yeah.

So, I I had a story about a week ago about um what really led Trump to back down on China. And people inside the White House were explaining that basically what happened was it was increasingly clear that the 145% tariffs on China were not just hitting guys on Wall Street were not just hitting sort of people who work at the ports and and sort of coastal types um but that they were really affecting Trump's base that truckers and um you know sort of like shippers and people who Trump considers his people were getting sort of clobbered by these tariffs And that fact, we reported created the space for White House officials who didn't like these tariffs to go to Trump and say, "Hey, your own people, your own base is getting hit by this, so you need to figure out a way to get these things lowered. " And that was what led to the talks in Geneva, that led to the accord um agreed to by Treasury Secretary Harry Scott Besson.

The thing that Trump is complaining about is that even beyond the tariffs themselves, China retaliated by restricting what were called rare earth metals, which are confusingly not actually that rare, but they are essential and basically 80% of production or um facilitation synthesis of these rare earth metals is in China. So basically most the vast majority of the world's production is there and they control that supply chain and that's critical for the US defense industry for US healthcare sector for all kinds of really critical economic functions and I I don't know enough personally to weigh in on this but the Trump administration feels that China has not really um removed those restrictions that they agreed to in the Switzerland accord and that they're still continuing to restrict those essential metals um and that that you know might not show up in the macroeconomic data but could severely sort of weaken the US defense industrial capacity for a long time and and and you know um the president thinks that thought that he had an agreement to to get that off the books and and does feel like that that has been violated. Yeah.

And Jeeoff, this also gets to this tension that you started by mentioning at the beginning. On the one hand, there's this Trump always chickens out narrative. On the other hand, uh as you said, you wrote down the level of tariff that like the increase of uh of of tariffs that we're actually at from the baseline before Donald Trump took over.

Uh and you know, maybe he's he's checking out on some of those points. um or call I'm sure he would just say it was negotiation. But on the other hand, he's actually still has a pretty high level of of tariffs um relative to everything that came before him.

And that's actually another really big part of the of the tax bond market discussion because if spending cuts of a huge magnitude are politically unpalatable and they feel like they can't really reduce the size of the tax cut itself anymore, tariffs, I mean it's been ridiculed, but it is true that the US government has quadrupled or more the amount of revenue it's bringing in through tariffs and that can offset the fears in the bond market. So, you know, we've seen kind of a stalling of the deals that Trump said he was going to make with the Europeans and the Japanese and the Indians that all that talk has really slowed down. And I think there's a legitimate question about whether part of that is due to the desire to bring in revenue via these high import duties, which you know is kind of an obvious point, but those fall quite heavily on lower income Americans who rely um you know a disproportionate share of their spending is on imports of food and you know other sort of critical necessities whereas you know the tax bill um disproportionately hurts them with the spending cuts.

So, it's it's a they're really potentially getting pinched on both sides here. Um, Jeeoff, last question for you. We had a court last week say, "Okay, these Liberation Day tariffs, they vastly exceed the authority that you're invoking here.

" We had another court say, "Okay, the Fieldsport Court said, okay, well, while we're figuring this out, you can still keep the tariffs in place. " Um, the Trump administration has been very aggressive in going out and saying that regardless of, first of all, they're really mad about the court decision, but also second of all, they're saying it doesn't change anything. we have other powers we can use.

So what is your expectation of where we are with regard to Trump and his desire and ability to um you know to levy massive tariffs in whatever way he chooses to. So I don't want to bore your listeners any more than I already have and especially with like a long-winded explanation of like the different laws um at play here. But to try to give you a quick summary, um Trump imposed tariffs immediately under a law called AIPA, which is a sort of national security emergency.

And that's the one that the courts have targeted as being, you know, beyond the ability of the president. That said, there are other tariff authorities. They're called section 301 and section 232 tariffs that basically require at first an administrative, you know, investigation.

the administration has to go out, do a bunch of work, and then say because of that work, now we can do these tariffs. And that work is currently ongoing. It just it just takes a little bit of time.

But there's really, I think, very very little doubt that those tariffs can be slowed down by um the courts. So even if the courts take off the emergency powers tariffs which they have, you know, slowed down but then were put back in, even if that happens, there's still these other tariff authorities that I don't think really anyone questions the their ability to do. And I think those are are going to stay and actually could be even bigger in some ways than the national security tariffs because those are tariffs on sectors.

So like every car, every bit of steel, every, you know, part of uh computer. So that that's kind of where this is heading. It could circumscribe some of the flexibility he has, but it doesn't change sort of like the economic fundamentals of what he wants to do.

Gotcha. All right, Jeff Stein, thank you so much. And you are never boring, sir.

We always appreciate your insight. My pleasure. Thanks for having me on.

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