I don't respond to quarterly numbers, India is growing faster than any other country: Jamie Dimon
JPMorgan Chase chairman and chief executive Jamie Dimon spoke to Saloni Shukla and MC Govardhana Rangan in an interview.
Edited excerpts:
The last time we met, you were very optimistic about India... A year on, our GDP growth has suffered... What do you have to say now?
I don't respond to quarterly numbers ...India is growing faster than any other country. The government has made a lot of changes that would be very good for the future. The effect they have next quarter is not going to say much, but a lot of good changes are made with Aadhaar, GST, and the bankruptcy law.
You met the Prime Minister just before meeting us. What is the message he gave you?
You have a very good and strong Prime Minister. He has made a lot of changes here and if we would have been sitting here four years ago, I think there would have been a lot of frustration. If the government doesn't take action ...they have taken action and done things that would help all the people.They have not taken action only for one group ... So, we got a quick update on some of the actions they have taken and more actions that he wants to take, such as affordable housing. We shared a little bit of what JPMorgan does here in India.
Most people have criticised demonetisation, especially because of the growth lost ... Do you see any long-term benefits of demonetisation?
I think the purpose was to create bank accounts, get rid of illicit money and it probably served that purpose. It was a bold thing to do... Most countries have not done it because they are afraid of that. But for countries to try to do things like that, it breaks the back of corruption. It is, probably, a wise thing to do at one point of time. Part of what holds countries back is this cancer type of corruption that hurts small businesses, individuals, and the government.
Emerging economies are getting a lot of fund flows. There is a perception that Indian earnings do not have the potential to attract such flows...
Markets are markets. They go up and they go down. I think wise investors are pretty wise and speculators are going to come and go. But part of this reflects the optimism about the long-term future of India. You have the fifth-largest economy in the world.When I was here a year ago, you were seventh and I think the stock market reflects a little bit of that.
Foreigners, it seems, are more optimistic about India than Indians themselves. You must have interacted with a fair number of CEOs during this visit. Is that the sense you get?
This is a universal phenomenon. If you went to the US, you would probably say the same thing. I think countries tend to look at their own problems. It is a good thing. They intend to see them, they want to change them.People on the outside tend to look at what is the pace of change, what is different now from before and the difference is huge.
How big a geopolitical risk is the US-North Korea stand off?
There is always a huge amount of geopolitical risk, some known, some unknown, and some are good. People forget the good ones. Mostly, newspapers write about the bad ones and if we read the newspapers, we always focus on the risk there is ....There has not been a war on the Green Peninsula since 1952. I think people overdo geopolitical risks sometimes.
The biggest risk for mankind bar none is nuclear weapons, and the governments of the world have to get their hand around that. Because, if we don't, you have proliferation and then one day it will land up in the hands of someone who uses it in a bad way. The way I look at North Korea is that the chance of something bad happening is higher but still not unbelievable. You should be saying, Oh! my God, something is going to happen tomorrow ... it's not. There are a lot of reasons why it is not going to happen tomorrow, but it is a flashpoint. But that is not going to stop the world from growing, it's not going to stop China and America from negotiating deals, it's not going to stop India from growing.
What are your thoughts on the Fed announcement?
It's good that they are raising rates and starting to sell some of the bonds. The thing you have to look in that is not the what, but also the why and the when. Right now, they start doing that in the face of a healthy US and global economy: That's going to be a lot easier than if we were not facing a healthy global economy. To me, the interest rates don't matter as much as a healthy and growing economy. If they were to do that in an unhealthy economy, that is a whole different issue. It's a little risky because we have never had a mass unwind of QE before.I can't tell you what is going to happen because this has never happened before, but I think they are doing the right thing.
The market believes that inflation is not moving up and that growth is there. There is a disconnect between what the market is factoring in and what the Fed is doing...
It has been that way for a couple of years.I think it's wrong that inflation at 1.7% or 1.5% is bad and 2% is good ....People are making a huge deal about a very small difference. If you ever dig into these inflation numbers, they are not accurate in the first place so a small difference almost does not mean anything. What does mean something is what I call the real numbers ...Employment, production of cars, production of homes ... These calculated numbers have this artificiality to them. I have believed that America's growth is sub-optimal for a whole bunch of policy reasons, it could be more than 2% and also if unemployment goes lower, you will see some wage infla tion. I think the Fed is trying to be very responsive and not react too quickly. You will see inflation tick up a little bit and, anecdotally, you will see wage inflation in the US, which is a good thing. Even when business CEOs start complaining about it, it will still be a good thing.
The Fed seems to be firmly on the path of unwinding the QE whereas BoJ and ECB are not. Will that lead to a destabilised financial market globally in a few years?
I wouldn't use the word destabilised... You are absolutely correct that it's 12 trillion dollars of assets ... They don't have to sell all of it... So, it isn't the full amount. As long as the economies are healthy, they can withstand the sale of some of these bonds. I do worry about this destabilisation if inflation gets too high and, therefore, they have to do these things faster, and that may not be so good. You want to be seamless but we don't know the circumstances. If it does happen, they can reverse course and they can reduce rates again. They will have other tools if it happens. But it could easily cause real fluctuations in the sovereign debt markets.
You said American growth is suboptimal? What do you believe is the potential?
Our corporate tax system is the worst in the world and is not conducive to growth.Regulations are stifling small business, they are being hurt by the lack of credit and strangled by a lot of little regulations that make it hard for them to form a new business. We have been very slow at infrastructure. Our education system is not producing enough people who have skills that get them jobs when they get out. So, we have 5 million open jobs but the people we have are in the wrong place and have the wrong skills. So, we have got to do a better job. If we did all those things right, we would be growing faster.
Your views on tax rates have been rather critical but nothing seems to have changed so far...
You can't have an uncompetitive system and think that you are being competitive.That is not possible. I tell the people you need a vibrant business economy to create jobs and wages. That is not the only thing you need, but you need it. Every study shows that a competitive tax system is good for the average people of our countries. The way lower taxes are written about is that it is going to feed the pockets of corporations.It won't. All that money would be paid out, or reinvested.
You said, and I quote about “the stupid shit we have to deal with in this country.“ Is it the reflection of disappointment with the Trump administration's inability to drive economic reforms?
We haven't focused on fixing the regulations that are damaging the economy, we haven't made our tax system competitive, we haven't built a major airport in 25 years.It takes 10 years to get a permit to build a bridge. Someone told me it took 17 years to build the Freedom Tower, and it took 18 months to build the Empire State building.That is my frustration....I think the current administration is trying to fix some of those things, they have been very active on the regulatory front, they are trying to get people jobs, they are trying to get corporate tax reform, it's still early in the administration. We will see how much they get done.But the agenda of infrastructure, regulatory reform, tax reform....That is their agenda and they have got some very smart people trying to get that thing done in Congress.
It's almost 10 months into the Trump administration. There was a lot of hope that some of the adverse regulations will be rolled back. But it hasn't moved at all. Is there a lot of frustration?
I think people are a little more patient than that and no one expected it to happen overnight. Tax reform will take time. They are trying to do it at a very accelerated pace and we will see how it pans out. We don't have any infrastructure proposals out there yet and as far as regulatory reform is concerned, they have good people in the agencies. These agencies can have an impact. Metal and mining companies have already seen a change, but we haven't seen changes in the financial sector because the same people are still running all the banking related agencies. Eventually, we should see healthy reform.
What is your view on the ongoing political debate on immigration?
I am a product of three immigrants none of whom finished high school. America has been a melting pot and it has been a wonderful thing for the vitality of the country. There have been some legitimate arguments on America's border controls. I understand the issue that there should be proper immigration control. On the other hand, we support DACA. I would support a proper path to citizenship. I would be more ambitious about allowing educated people in.
You created a storm over your Bitcoin comment....
We already have digital currencies ....You can have digital rupee, so I am not against a digital currency per se. I am talking about the creation of money and value out of thin air. Governments now look at it like a novelty but the bigger it gets, the less it is a novelty. Nations make currencies. They like to have central banks controlling it. They also like to know who has it, where it's going, and why it's going there. And that is not Bitcoin.
My point is the bigger it gets, they would become the enemy of governments and governments would close it down... China just did it.
