Analysis: Controversy over Debt Limits: Is the U.S. at Risk of Bankruptcy?​​​​​​

The U.S. Treasury Secretary is skeptical about the country’s future: Janet Yellen is appealing to Congress to make a decision to raise the debt limit as soon as possible, according to an analysis in the Weston Forum. In an opinion piece in the Wall Street Journal, Yellen wrote that if the U.S. could not meet its obligations, it would trigger a historic financial crisis. “We will emerge from this crisis as a permanently weak country,” she wrote. U.S. creditworthiness has so far been a strategic advantage. She said that “sometime in October” the U.S. government would not be able to meet its payment obligations if no decisions were made by then. But neither Democrats nor Republicans seem to want to be solely responsible for raising their legal debt limit again. While Democrats are firing on Donald Trump for amassing an additional $8 trillion in debt during his tenure, Republicans are firing at Joe Biden as an unhealthy spendthrift. Democrats could have solved the problem on their own by increasing their spending bill. This does not require Republican approval. But they also want to bind the opposing party — just as they have done under Trump. Republicans, on the other hand, don’t want to get into that. With a Democratic president, a Democratic House, and a Democratic Senate, Democrats have all the tools they need to raise the debt ceiling. The crisis caused by a U.S. government default would exacerbate the economic damage caused by the ongoing coronavirus pandemic, moving markets and plunging the U.S. economy into recession. Yellen believes that millions of jobs will be lost and that interest rates will rise permanently.​​

Commentary: America Risks an ‘Evergrande Moment’*​​​​​​

Global investors suffered a bad moment earlier this week when they belatedly started to worry the financial fiasco engulfing Chinese property developer Evergrande Group might spread beyond the country’s borders. After a one-day drop in the Dow Jones Industrial Average, they got over their unease — but only because most observers view this situation entirely the wrong way, according to a Wall Street Journal commentary. The question is not whether an exploding debt bomb at a Chinese company will spread financial shrapnel abroad. It won’t. The explosion would detonate within the concrete bunker of China’s closed financial system, which will dampen, if not entirely mute, any shock waves. The better question is whether similar explosives lie ticking in other developed economies. The answer is that there’s probably some version of Evergrande in most of them. China’s dysfunctions are not as unique as outsiders want to believe. Most folks already seem to be forgetting that from Beijing’s perspective, Evergrande’s potential implosion is as much a solution as a problem. There’s a reason the Chinese government was willing to set in motion such a predictable series of events by cracking down on property-related debt. The problem Beijing needs to solve, stated in its simplest form, is this: An aging and potentially shrinking population finds itself fantastically overreliant on property-linked borrowing to fuel current economic growth, and on the underlying property as a store of savings from which to finance the middle class’s needs in its impending retirement. Endless complications arise from that basic dynamic, according to the commentary. The most interesting is that chronic redirection of the economy’s savings into property “investment” saps productivity growth over time because real estate is a less productive asset than a factory or a research-and-development lab. Because of the mismatch between properties’ relatively muted productivity and the rising property prices on which middle-class savers have come to rely, governments face constant pressure to find new mechanisms to sustain high prices. This often means encouragement of ballooning debt levels.​​



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Commentary: Stay the Course, Oklahoma: Takeaways from the Proposed J&J ‘Global’ Opioid Settlement*​​​​​​

Talk about a bad deal. Johnson & Johnson recently announced a national settlement aimed at ending all its opioid litigation. J&J would pay a total of $4.65 billion over 9 years to settle all the opioid claims against it in the United States. This sounds like a lot of money. For Oklahoma, though, it’s not, according to a commentary in The Oklahoman. This settlement was negotiated in secrecy, without Oklahoma at the table. Other states and J&J agreed that Oklahoma would get only $13.5 million as part of this backroom deal, and there is nothing to stop J&J from deploying some shifty bankruptcy strategy afterward — which they threatened to do in response to the talc litigation. Putting that $13.5 million in perspective, Oklahoma’s public health experts say it will cost $17.7 billion to clean up the mess J&J made in Oklahoma. The cost of the opioid epidemic nationally is more than $500 billion annually. Meanwhile, Oklahoma won a landmark judgment against J&J that’s now worth around $520 million. The national settlement is only worth less than 3% of what Oklahoma won at trial. Wisely, Oklahoma did not take this deal. Thanks to the foresight and courage of State leaders, Oklahoma has already won over $800 million in its fight to rectify the opioid crisis. This includes $270 million from Purdue Pharma — about $200 million of which is already at work funding a world-class addiction research and treatment center in Oklahoma; $85 million from Teva; $8.5 million from McKinsey; and $9.75 million from Endo. J&J has so far paid nothing other than the $832 million they spent on litigation costs in 2019 alone. No other state has recovered a dime from Purdue, the Sacklers, Teva or Endo. Oklahoma’s strategy to aggressively litigate and negotiate these cases separately has worked so far, making Oklahoma the most successful state in the country in terms of securing funds to reverse the opioid crisis. No other state can boast a record like Oklahoma. No other state had the courage to even start a trial with J&J, according to the commentary.​​



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Analysis: Don’t Expect Student Loan Forgiveness for Every Borrower​​​​​​

At a virtual student loan debt summit this week, Senate Majority Leader Chuck Schumer (D-N.Y.) criticized President Joe Biden for not enacting wide-scale student loan cancellation, according to an analysis in Forbes. Schumer repeated his call for Biden to cancel up to $50,000 of student loan debt for borrowers “with the flick of a pen,” referring to what Schumer believes is Biden’s legal authority to enact mass student loan cancellation through an executive order. Schumer says that cancelling student loans will stimulate the economy and help a generation of student loan borrowers have extra money to get married, start a family, buy a home, save for retirement and start a business. However, here’s the thing: As much as student loan cancellation is pitched, the reality is that every student loan borrower won’t get student loan cancellation, according to the analysis. Student loan forgiveness has been loosely talked about in a binary way: Either Biden cancels student loan debt, or no one gets student loan forgiveness. Since becoming president, Biden has cancelled nearly $10 billion of student loans. This includes student loan forgiveness for disabled student loan borrowers, as well as student loan cancellation for student loan borrowers under the borrower defense to repayment rule. Despite the high headline number, some say that on a relative basis, targeted student loan forgiveness is welcomed, but the student loan forgiveness to date only constitutes less than 1% of total student loan debt of $1.7 trillion. Student loan cancellation may help more student loan borrowers, but that doesn’t mean Biden will cancel everyone’s student loan debt. While Biden asked the U.S. Department of Education in March to opine on his legal authority, that legal memorandum hasn’t been made public. Biden will continue to cancel student loan debt, but most student loan borrowers won’t have all their student loan debt discharged.​​

Analysis: America’s Cash Might Stay on the Sidelines​​​​​​

If Americans ever feel comfortable again, they have a lot of money that they can spend, according to an analysis in the Wall Street Journal. But who knows when that comfort will come? The Federal Reserve on Thursday reported that the net worth of U.S. households was $134 trillion in the second quarter — up from $128.4 trillion in the first quarter. That figure stood at $110 trillion in the fourth quarter of 2019, before the pandemic took hold. Including nonprofits, accumulated household net worth in the second quarter hit a record $141.7 trillion. Much of that increase in wealth came about from gains in stock prices and the value of people’s homes, but what may be most notable is how much more money people have lying around in cash. The amount of cash and cash equivalents on household balance sheets rose to $16.5 trillion in the second quarter, from $16.3 trillion in the first quarter and $12.7 trillion at the end of 2019. It is a reflection of both how much people reduced spending, particularly in the early stages of the pandemic, and the substantial relief that the federal government has provided. Chances are that cash has continued to build up since the end of June: The latest data from the Commerce Department show that in July people hung on to 9.6% of their after-tax income, which compares with an average personal saving rate of 7.4% in the five years ended 2019.​​

U.S. Jobless Claims Tick Up from Near a Pandemic Low​​​​​​

The number of Americans applying for unemployment aid rose last week for a second straight week to 351,000, a sign that the delta variant of the coronavirus may be disrupting the job market’s recovery, at least temporarily, the Associated Press reported. Thursday’s report from the Labor Department showed that jobless claims rose by 16,000 from the previous week. As the job market has strengthened, unemployment aid applications, which generally track layoffs, have tumbled since topping 900,000 early this year, reflecting the economy’s reopening after the pandemic recession. The four-week moving average of claims, which smooths out week-to-week swings, registered its sixth straight drop — to a pandemic low of 336,000. Jobless claims still remain somewhat elevated: Before the virus tore through the economy in March 2020, they generally numbered about 220,000 a week. In a research report, Contingent Macro Advisors concluded that the recent jump in applications for unemployment benefits — especially so last week in California and Virginia — likely reflected a technical problem in processing the claims. America’s employers have rapidly increased their hiring since they slashed 22 million jobs in March and April 2020 as the pandemic — and the shutdowns that were meant to contain it — brought economic activity to a near-standstill. Since then, the economy has recovered about 17 million jobs as the rollout of vaccines encouraged businesses to open and expand hours and Americans to go back out to shop, travel and dine out. But hiring, which has averaged more than 585,000 jobs a month this year, slowed to just 235,000 in August as the delta variant disrupted the recovery. Overall, 2.8 million Americans were receiving unemployment benefits during the week of Sept. 11, up by 131,000 from the week before.​​

ABI's Views from the Bench Program Returns Tomorrow!​​​​​​

ABI’s popular Bankruptcy 2021: Views from the Bench program is taking place tomorrow and will feature the views of more than 20 sitting and retired bankruptcy judges during a full day of high-quality CLE and networking opportunities. Attendees will have the option of attending the program either in person at the JW Marriott in Washington, D.C., or virtually via an innovative online platform. This year’s program will examine a number of current issues related to bankruptcy case confirmation, the changing real estate landscape, small business reorganization and much more. Attendees have the chance to earn up to 6/7.2 hours of CLE/CPE credit and up to 1.2 hours of ethics. Click here to register!

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