Jamie Dimon is right to worry about US economic stability

He may want to consider adding physical climate risk to his list of concerns

We are living in a sliver of time in which long-term risks are climbing as short-term boosterism flares unconstrained. Yesterday, stock market investors shrugged off the idea that America might not be a great investment, seeing Moody's downgrade last week as a dip-buying opportunity: more than $4 billion flowed into US stocks by midday, setting an all-time record. Also yesterday, Jamie Dimon, who turns 70 next year, told JPMorgan Chase investors that he thinks the market is displaying an "extraordinary amount of complacency."

He doesn't think investors are adequately pricing in the risks of an economic downturn, inflation, stagflation, the effects of tariffs, or major geopolitical tensions—and that public debt is full of risks that investors are ignoring because they haven't been through a crash: "I think credit today is a bad risk," Dimon said yesterday. "I think that people who haven't been through major downturns are missing the point about what can happen in credit."

Dimon, who has been through throat cancer and emergency heart surgery, speaks with the authority of someone who has navigated a long and successful career. (The investor conference yesterday was also an opportunity to see who his successor might be.) Notwithstanding his economic warnings, he's confident that his firm's "fortress balance sheet"—JPMorgan Chase plans to reap $94.5 billion in net interest income this year—will protect it. So he has no reason to be quiet about the long-term risks he thinks others are overlooking.

But absent from the list of headwinds Dimon highlights is the direct exposure of the bank's $1.6 trillion in consumer credit (including $326 billion in residential real estate loans) to intensifying physical climate risks. The bank takes the position that these risks aren't material because its portfolio is geographically diversified and there's some insurance out there serving as a buffer. It acknowledges that the situation could change, as house prices are driven down by "climate-driven events" and insurance becomes more expensive or unavailable.

To borrow Dimon's own framing, JPMorgan Chase itself may be missing the point: No one has been through anything like the accelerating physical risks we now face stemming from a warming climate, or the effects these forces will have on local economies underpinning much of the country's economic stability. You could say that the bank's short term view about these physical risks—even as real estate values in Florida decline and inventories of houses for sale swell—is extraordinarily complacent. Meanwhile, international banking regulators—whose efforts US bankers strenuously resist—are focusing on analyzing the impact of extreme weather events on financial risks.

Perhaps US banks are trying to avoid the political costs of mentioning physical climate change risks. Dimon's firm has been publishing terrific reports about adaptation (for example, Building Resilience Through Climate Adaptation), but the documents bear an elaborate disclaimer:

"This material (including any commentary, data, trends, observations or the like) has been prepared by certain personnel of JPMorgan Chase & Co. It has not been reviewed, endorsed or otherwise approved by, and is not a work product of, any research department of JPMorgan Chase & Co. and/or its affiliates ... Any views or opinions expressed herein are solely those of the individual author and may differ from the views and opinions expressed by other departments or divisions of JPMorgan Chase."

Still, long-term news this month about accelerating effects on the East Coast—home to Wall Street as well as booming population growth in Florida, North Carolina, Georgia, and South Carolina (all of which grew by 30-40% over the last 25 years)—should get financial risk managers' attention.

As we all know, the East Coast is seeing more and more flooding each year due to rising sea levels and sinking land; over the last 25 years, flood days have roughly doubled. Thanks to a study that came out last week (pdf here) we now know that as much as half of this recent increase is linked to a slowdown in the Atlantic Meridional Overturning Current (AMOC). In other words, after 2005, this shift in the ocean made flooding worse.

What's truly fascinating is that there appear to be long-term, multi-decade swings in the strength of the AMOC, long pulses of up and down that we are just beginning to capture in data. Picture a see-saw going up and down very slowly: weak before 1920, strong until 1945, weak between 1945 and 1980, strong until 2005, and weaker since then. And when AMOC is strong, moving along in its conveyor-belt way hauling massive amounts of warm, salty water from the tropics to Northern Europe, sea levels along the East Coast tend to be lower. When it's weak, they're higher. It's been weak since 2005, and that explains much of the increased flood risk since then.

Why? Mostly because when the deep part of the ocean current weakens off the East Coast, it causes warming in the deeper waters along its path. That means there is a massive amount of water there in the deep ocean—because warmer water takes up more space. The water near the coast is shallower, so there's a gradient, a difference. Massive water distribution follows, leading to higher sea levels along the US East Coast—on top of already rising sea levels happening because of ice melt and generally warmer water around the globe.

We know that the AMOC has weakened by about 15 percent since the mid-20th century. We also know there's a substantial likelihood (Ditlevsen, Smolders) that it will cross a tipping point or even collapse between now and 2095, although there's ample discussion about this (Sandra Upson, for WIRED, Bob Henson for Yale Climate Communications). And now we know, for certain, that this change would bring a dramatic increase in flooding to our East Coast, even in the absence of severe storms —causing great dislocation.

There's a disquieting disconnect, a kind of whiplash, between the short term boosterism of our assumption that economic residential stability will always be ours and the enormous long term risks we face along our coasts, home to most of the country's GDP. It's jarring. It's discordant. Just consider Miami's bond rating: Moody's: Aa2 (Miami-Dade County); S&P: AA; Fitch: AA+. But surely the tax base there is at risk.

At any rate, we're all displaying an extraordinary amount of complacency. Dimon sees tariff/stagflation storm clouds gathering, but the climate's rising physical threats will surely test our country's economic stability—including, perhaps, JPMorgan Chase's.