JP Morgan , the boss of a US bank, has warned the world that it could be in the midst of the most dangerous time since the Second World War. This would put lives at risk and threaten economic growth.
Jamie Dimon, in his letter to investors said that the world was “generally” on a path of becoming stronger and more secure in recent years. However, this had taken a dramatic turn in February 2022 with Russia’s invasion of Ukraine.
Dimon stated that “when terrible events occur, we tend overestimate their effect on the global economic system.” Dimon said that recent events could very well create risks that are greater than anything since World War II. We should not take these risks lightly.
The Wall Street banking boss didn’t mention Israel’s recent assault on Gaza, but said that the “abhorrent attacks on Israel and the ongoing violence in Middle East” have also “punctured a lot of assumptions about the future direction of safety and security and brought us to this pivotal moment in history”.
Dimon, in a letter that covered everything from artificial intelligence and politics to interest rates Dimon warned investors that the breakdown of international relations could “end up having virtually no impact on the global economy or it may be its determining factor”.
He said: “The ongoing conflicts in Ukraine and the Middle East may become worse and spread in unpredictable and unpredictable ways.” The spectre nuclear weapons, probably the biggest threat to humanity, is the final decider. This should make us all fearful.
“The best protection begins with a unyielding commitment to do what we need to to maintain the most powerful military on the globe – an investment that is well within the range of our economic capabilities.”
The warning is similar to that of the International Monetary Fund , which warned in December that the global economy could be on the verge of a “second cold war” and that it would “annihilate the progress” made since the fall of the Soviet Union.
Gita Gopiath, IMF’s deputy managing director and first deputy, stated that at that time the world had reached a “turning-point” due to the increasing tensions between the two most powerful countries. She also said that the fragmentation of world economies into regional power blocks, centered around the US, could lead to the loss of trillions of dollars of global output.
If we enter a second cold war, knowing its costs, it is possible that we will not experience mutual economic destruction. She said that we might see the benefits of open trade wiped out.
Dimon warned of a rise in government spending, linked to increased military expenditures as well as climate change plans, healthcare costs, and global supply chain changes. This could lead to “stickier rates and higher inflation than the markets expect”.
He said JP Morgan had already prepared contingency plans for the possibility that US interest rates, which are currently in a range between 5.25% and 5.5% , could rise to 8% or even fall to 2%.
He added, “We are concerned about the persistent pressures of inflation and we consider many options to manage our interest rate exposure as well as other risks.”
The IMF warned world’s largest central banks on Monday against maintaining interest rates too high for too long.
The Washington-based fund warned that the Bank of England must be careful to maintain current high borrowing rates because a greater proportion of UK homeowners have fixed-rate mortgages than in other countries. This has weakened the effect of increasing interest rates.
The news comes as the Organisation for Economic Co-operation and Development (OECD), a member organisation that includes 38 of the leading democratic economies in the world, reported that food prices rose at the lowest rate ever since the Russian invasion of Ukraine, across the richest nations of the world.
Analysts have been more cautious about the amount of interest rate reductions in recent weeks.