Some of the top names on Wall Street think a US recession is now likely, if not inevitable. But they have bigger worries on their minds.
“There’s a lot of stuff on the horizon which is bad and could — doesn’t necessarily — but could put the US in recession,” he said on a panel at the Future Investment Initiative conference in Riyadh, Saudi Arabia.
“That’s not the most important thing we think about. We’ll manage through that. I’d worry much more about the geopolitics of the world today,” he told CNN’s Richard Quest, who moderated the discussion between some of America’s most influential financiers at the event, which is also known as “Davos in the Desert.”
Dimon said he was referring to Russia’s war in Ukraine and fraught relations between the United States and China, where leader Xi Jinping has just cemented his grip on power and sidelined officials who have pushed for reform and opening up the world’s second biggest economy.
“The relationships of the Western world would have me far more concerned than whether there’s a mild or slightly severe recession [in the United States],” he added.
The breakdown of relationships — and the negative consequences for everything from national security to energy supply and food security — was a persistent theme during the discussion. Dimon and Blackstone Group (BX) CEO Stephen Schwarzman pointed to the isolating effects of the pandemic, which they said had impacted on communication between people and the ability to learn from one another.
“We’ve gotten ourselves into a situation that’s increasingly deglobalized,” Schwarzman said.
Ray Dalio, the billionaire founder of hedge fund Bridgewater, said there is an “existential risk of international war.” What is needed is a “strong political middle” that is “stronger than the extremes,” he added.
America’s missing leadership
According to Dimon, at the root of many of these problems is a lack of American leadership.
“If you don’t have strong American leadership — not ugly American leadership, not ‘our way or the highway’ — just as a coalescing thing for the Western world, you’re going to have chaos like you see in Ukraine,” he said.
Dimon said he was confident that the relationship between the United States and Saudi Arabia will remain strong, despite tensions that escalated following the decision by OPEC+ to slash oil production earlier this month.
“Saudi Arabia and the United States have been allies for 75 years. I can’t imagine any allies agreeing on everything and not having problems. They’ll work it through… and remain allies going forward,” he said.
Commenting on the likelihood of a recession in the United States, Dimon said that while US business and consumer spending remains robust for now, Americans will probably run out of “excess money” around the middle of next year.
David Solomon, the CEO of Goldman Sachs (GS), speaking on the same panel, also thinks a US recession is likely.
“There’s no question that economic conditions are going to tighten meaningfully from here,” Solomon said, referring to interest rate hikes by the Federal Reserve. “If you find yourself in a situation where inflation is embedded, it’s very hard to get out of it without an economic slowdown,” he added, commenting that Europe might already be in recession.
Fix social media but keep innovating
Schwarzman also highlighted rising interest rates and “the problems of relationships among countries” as the major challenges facing businesses.
To that list he added social media.
“One of the things that we’re almost not aware of is how difficult it is for governments to function in a world of social media,” Schwarzman said. Initiatives to try to “make the world a better place” are undercut by “some minority shouting down” people attempting to accomplish something for the benefit of the world, he added.
Dimon said that social media users should be authenticated in the same way that people require verification to access the banking system, which would help “get rid of bots.”
Social media users should also be given a “menu of choices” for algorithms that explains how each one works. “They should give you a choice as opposed to manipulating you,” he added.
When asked which type of algorithm he would choose, Dimon answered: “I don’t look at any of that crap.”
Notwithstanding the downsides of social media or political and economic divisions, the panelists were optimistic about the power of innovation to improve the state of the world.
“We can sit up here and talk about all the things that are headwinds to growth… but the innovation economy is alive and well,” said Solomon.
Technological progress on a variety of fronts — from quantum computing, to artificial intelligence and advances in education and healthcare — were “very, very powerful” and “have the ability to lift us up and move us forward,” he added.
Saudi Arabia’s Future Investment Initiative, which runs until October 27, started in 2017 under Crown Prince Mohammed bin Salman’s “Vision 2030,” a plan to attract international investment and wean the economy off oil.