Wall Street sounds the alarm on US debt — Jamie Dimon warns of a 'crack in the bond market'
Jun 3, 2025
Key Points
- JPMorgan CEO Jamie Dimon warns a "crack in the bond market" is inevitable, though the timing remains uncertain, and flags that current bank regulations restricting bond holdings could worsen any liquidity crisis.
- Annual U.S. interest payments now exceed $1 trillion, surpassing defense spending, while a pending spending bill would add $3 trillion to debt over ten years or $5 trillion if temporary provisions persist.
- The bond market has yet to panic despite the fiscal deterioration, leading hedge fund manager Paul Tudor Jones to call the disconnect "economic kayfabe"—a staged suspension of disbelief that cannot hold indefinitely.
Summary
Wall Street's debt alarm is getting harder to dismiss. Jamie Dimon, JPMorgan's CEO, warned Friday that a "crack in the bond market" is coming, though he remains uncertain whether it arrives in six months or six years. He told regulators to prepare for panic, though he expects JPMorgan to navigate it. Current bank regulations restrict institutions' ability to hold bonds, which could worsen any market disruption by limiting liquidity.
Annual interest payments on U.S. debt now exceed $1 trillion, already surpassing the defense budget and exceeding Medicare, Medicaid, disability insurance, and food stamps combined. A pending tax and spending bill, formally titled the "One Big Beautiful Bill Act," would add roughly $3 trillion to debt over the next decade, or $5 trillion if temporary provisions become permanent, according to the nonpartisan Committee for Responsible Federal Budget.
Treasury yields pose the real risk. If 10-year rates stay at current levels around 4.4% for the coming decade, the Committee estimates an additional $1 trillion in interest costs. If yields spike in a vicious cycle, the damage compounds. Congressional Budget Office estimates assume the bond market will not only tolerate surging spending but become more relaxed about it, a bet that looks increasingly fragile.
Ray Dalio, Oaktree Capital founder, recently launched a book titled "How Countries Go Broke" and told Bloomberg he gives America three years, give or take one, to avert an economic heart attack. Peter Orzag, now CEO of investment bank Lazard and former White House budget director, acknowledged last week that previous warnings about unsustainable deficits were overblown. He is worried now because "the wolf is lurking much closer to our door."
Yet the market hasn't panicked. Thirty-year yields recently hit post-crisis highs, but bonds are not collapsing. Hedge fund manager Paul Tudor Jones calls the paradox "economic kayfabe," a professional wrestling term describing a staged show where those who know it's unsustainable happily suspend disbelief while the performance continues. Treasury Secretary Scott Bessent reiterated over the weekend that the U.S. will never default on its debt, but rapid inflation could accomplish the same outcome if the Federal Reserve moves to fiscal dominance.
Kenneth Rogoff, former IMF chief economist, explained in April that debt crises are never simple arithmetic. Most defaults occur through either outright refusal to pay or high inflation long before the numbers force it. Knowing when doomsayers will be proven right is impossible. Stein's law captures the bind: "If something cannot go on forever, it will stop." The law holds, but the moment of fracture remains unknowable.