JP Morgan raises warning sign: The United States is slowly heading towards bankruptcy. Massive debt coupled with tariffs as "painkillers" cannot prevent the crisis.

David Kelly, chief strategist at J.P. Morgan, warned this week that the United States is "heading towards bankruptcy," but the process is slow enough not to cause market panic yet. The U.S. national debt has now surpassed $37.8 trillion, with interest expenses exceeding $1.2 trillion. Kelly pointed out that even with moderate economic growth, the debt-to-GDP ratio, which is currently at 99.9%, could continue to rise. Although tariff revenues can provide some relief and temporarily alleviate deficit pressures, he cautioned that changes in political decisions or economic slowdown could quickly worsen the fiscal situation. Therefore, he advised investors to diversify investments to reduce dependence on U.S. assets before the "slow bankruptcy" accelerates. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, wrote in his report this week that the United States is heading towards bankruptcy, but because the government's "bankruptcy speed is slow," no one is panicking yet. Kelly said that the current U.S. economy is facing a series of issues (geopolitical conflicts, trade disputes, immigration policy adjustments, government shutdowns, etc.), and one of the key long-term issues is how the U.S. government will repay its debt. To reduce the size of the federal debt (and thus alleviate overall debt pressure), President Trump initially invited Tesla CEO Elon Musk to lead the formation of the "Department of Government Efficiency (DOGE)" with the goal of cutting $2 trillion in federal budget spending. But the two later publicly clashed over the White House's proposed "One Big Beautiful Bill Act." The Congressional Budget Office (CBO) estimated that the bill would increase national debt by an additional $3.4 trillion over the next decade. In response, the White House stated that its tariff policy would offset the additional expenses in the bill and also make up for the decrease in fiscal revenue caused by tax cuts. The CBO estimates that by 2035, tariff revenue will help reduce the total deficit by $4 trillion. The U.S. national debt continues to soar. The national debt has exceeded $37.8 trillion, with interest expenses alone requiring $1.2 trillion. Both J.P. Morgan CEO Jamie Dimon and Fed Chair Jerome Powell have expressed concern about this. Kelly believes that even though investors are aware of the problems behind the current fiscal data, this crisis will gradually manifest in the long term. "The question I am most often asked by investors and financial advisors is, 'When will the federal debt crisis erupt in full?' My usual response is that we are indeed heading towards bankruptcy, but the process is slow. The global bond market is very clear about the direction of U.S. debt. Even now, the U.S. government can issue 30-year treasury bonds at a yield of 4.6%, which indicates that the market believes the government still has room to borrow further," Kelly wrote in his report yesterday. Is it optimism, or naivety? Kelly pointed out that in the short term, ordinary investors may have reasons to remain optimistic. For example, he mentioned that tariff revenues have reached a considerable level (according to White House data, tariff revenues reached $31 billion in August); in addition, recent estimates from the CBO and the "Committee for a Responsible Federal Budget" show that the deficit-to-GDP ratio for the 2025 fiscal year will decrease from last year's 6.3% to 6%. The decrease in the proportion of debt to economic growth is a key indicator of concern for U.S. creditors. The debt-to-GDP ratio of a country is an important basis for measuring its debt repayment capacity or the need to issue bonds at higher rates. But Kelly warned: "It is necessary to carefully examine this data. The current total federal debt held by the public is close to $30.3 trillion, according to our estimates, accounting for approximately 99.9% of GDP. Based on this, if future nominal GDP growth remains around 4.5% (including 2.0% actual growth and 2.5% inflation rate), as long as the budget deficit rate exceeds 4.5%, the debt-to-GDP ratio will continue to rise. According to our assumptions, by September 30, 2026, this ratio will increase from 99.9% on September 30, 2025, to 102.2%." He added that the debt growth rate may even be faster than the above forecast. Taking tariffs as an example, the legality of the Trump administration's tariff policy is still questionable. Kelly pointed out that if the Supreme Court rules the policy unconstitutional, it "will at least force the government to develop a new plan - either based on other authorizations to introduce alternative tariff policies, or to push Congress to pass relevant legislation. In addition, this may also require the government to refund a large amount of tariffs collected in recent months." Moreover, current estimates of the deficit are based on the premise of "no economic recession, no need for significant additional spending on domestic and foreign priorities." However, doubts about whether some states in the U.S. may have already fallen into a technical recession continue to grow. Kelly said, "Therefore, considering the deficit ratio of 6.7% in the 2025 fiscal year as a 'conservative estimate' for this year's fiscal deficit may be more reasonable." Kelly believes that the core strategy for investors is to diversify their portfolios to hedge against the accelerating outbreak of the U.S. debt crisis. "There is a risk: political decisions may lead to a rapid worsening of the federal fiscal situation, which may then raise long-term interest rates and depress the value of the U.S. dollar. Just from the current asset allocation and valuation perspective, many investors should consider diversifying their investments by increasing allocations to alternative assets and international stocks. The risk of transitioning from 'slow bankruptcy' to 'rapid bankruptcy' provides a compelling reason for taking this action now."