Commentary: Central Banks Should Stop Hammering the Economy into Recession*​​​

“If your only tool is a hammer, every problem looks like a nail.” This old saying still rings true as central banks keep ratcheting up the interest-rate pain. There’s been minimal impact on wealthy households but a disproportionate effect on those who can least afford it. Better analysis of the furious pace of rising borrowing costs is needed urgently, along with more flexibility about reaching inflation targets and patience on letting monetary tightening do its job, according to a Bloomberg commentary. A global recession looks unavoidable if interest rates keep being hiked. We’ve had warnings from the gilt crisis, the collapse of Credit Suisse Group AG and several U.S. bank failures. Plenty of other rate-sensitive sectors are wobbling, including over-leveraged commercial property and utilities. But the real damage is being done in other pockets of the economy such as small- and medium-sized enterprises and home renters. So the stated aim of the Federal Reserve and its peers to “loosen” the labor market is misguided, according to the commentary. Central bank mandates don’t specify unemployment targets because the labor market is impossible to micromanage. When the tipping point is reached, it’s too late to prevent a swift downturn. Business loans mostly have floating interest rates, so firms feel the pain in real time. Bank lending and money supply measures are slowing globally. Measures of input inflation, such as producer prices, are falling rapidly. Economies may not be slowing as quickly as central banks would like to curb inflation, but the direction of travel is clear — and at risk of accelerating. Policymakers remain over-reliant on econometric models that are being rendered useless by defiantly strong employment and incomes. The answer lies in fiscal policy restraint, not blunt monetary tools, according to the commentary.​​​​​​ ​​​Read more.
*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. 

Leveraged-Loan Logjam Eases After Banks Unload Tens of Billions of Debt​​​

Banks have sold off tens of billions of leveraged-buyout debt that was gumming up their lending operations, raising hopes that a critical business on Wall Street is returning to normal, the Wall Street Journal reported. Typically, banks provide relatively high-risk loans to help finance private-equity buyouts, then unload the debt to investors. When interest rates shot up last year, investors grew skittish about buying billions of dollars of debt backing deals like Elon Musk’s $44 billion purchase of Twitter. Banks wound up parking about $80 billion of the debt on their balance sheets instead of selling at a steep loss, crimping their ability to make new loans and eating into their profits. But the logjam is finally clearing. Banks have cut their “hung” debt exposure by more than half since May 2022 to $35 billion, according to research from Morgan Stanley prepared for the Wall Street Journal. Although they likely won’t be able to bring the hung-deal balance down to zero soon, bankers say it is easier to make new loans now than it was last year. Banks found an unexpected source of funds to help them deal with the backlog in the growing private-credit industry. The private-credit arms of buyout firms Permira, KKR and Apollo and stand-alone credit players such as HPS were among those that purchased debt off banks’ balance sheets, often at a discount. The news isn’t all good for banks. A slow deal market and competition from private credit firms, which are also financing more big-ticket buyouts, are making it harder for banks to be the lender of choice to many private-equity firms.​​​​​​ ​​​Read more.

Americans Have Quit Quitting Their Jobs​​​

The surge in Americans quitting their jobs has abated since peaking during the pandemic, another sign that the labor market is cooling from ultra-hot levels as the Federal Reserve raises interest rates, the Wall Street Journal reported. Americans voluntarily left 4 million jobs in May, the Labor Department said Thursday. That marked a drop of around 500,000 from 4.5 million in November 2021, the highest level in Labor Department records back to 2000. The so-called quits rate — the number of resignations as a share of total employment — averaged 2.5% from March to May, down from 3% as recently as April 2022, and only slightly higher than the prepandemic level. Quitting rose as the economy recovered from deep job losses early in the pandemic. Many industries struggled with labor shortages as millions of people exited the labor market. Some workers re-evaluated their lives and the kinds of jobs they wanted, others jumped ship for more money, and others switched into fully remote roles. Those trends have since eased. A slowdown in voluntary departures can indicate a softening labor market if it reflects employers’ easing demand for workers, economists say. Employees might have less confidence they will find a better job or feel they have less bargaining power. Others might just be content with their jobs. Economists surveyed by the Wall Street Journal estimate that employers added 240,000 jobs in June. That would be the smallest gain since March. The Labor Department will release its June employment report on Friday.​​​​​​ ​​​Read more.

U.S. Layoffs Halve in June as Tech Job Cuts Ease​​​

Layoffs in the U.S. nearly halved in June from a month earlier as job cuts in the technology sector fell, according to data from employment firm Challenger, Gray & Christmas Inc., Reuters reported. Corporate America has taken to laying off a large number of their workforce, as aggressive interest rate hikes by the Federal Reserve to tame inflation have besmirched the U.S.’s economic outlook, stoking fears of a potential recession. Despite the drop in job cuts in the month, layoffs in June were higher than the corresponding month a year earlier, the report said. Technology companies continue to lead job cut announcements, with 141,516 layoffs in the first half of the year compared with about 6,000 in the same period last year. The sector laid off nearly 5,000 employees last month, the report said. “In fact, June is historically the slowest month on average for announcements. It is also possible that the deep job losses predicted due to inflation and interest rates will not come to pass, particularly as the Fed holds rates,” said Andrew Challenger, senior vice president at the employment firm. Meta Platforms had slashed jobs in May, part of a plan announced in March to eliminate 10,000 roles. Like its peers, Amazon.com in March had said it would axe another 9,000 roles as a part of its second retrenchment drive, as investors also persuaded the firms to cut costs. After a round of multiple rate hikes, the Fed unanimously kept its interest rates steady at the central bank's June meeting that could freeze layoffs and allay fears of employees.​​​​​ ​​​Read more.

U.S. Job Openings Dip to 9.8 Million but Remain High, Showing Resilience in Labor Market​​​

U.S. job openings slipped in May but remained at levels high enough to illustrate that the American labor market remains resilient in the face of sharply higher interest rates, the Associated Press reported. Employers posted 9.8 million job vacancies, down from 10.3 million in April, the Labor Department said Thursday. But layoffs fell slightly, and more Americans quit their jobs — a sign they were confident they could find better pay or working conditions elsewhere. Job openings fell in health care, insurance and finance. But there were more jobs available in education and government. The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) “continues to reflect a gradually slowing yet still-robust labor market, one that is cooler than a year ago but still hot,’' said Nick Bunker, research director at the Indeed Hiring Lab. He added that “demand for new hires remains elevated and employers are still holding onto the workers they have.’' Monthly job openings remain high by historic standards — they had never hit 8 million before 2021 — despite the Federal Reserve’s aggressive campaign to cool the American labor market and combat an inflation rate that last year hit four-decade highs. The Fed has hiked its benchmark short-term interest rate 10 times since March 2022. Economists have long predicted that the U.S. would tumble into recession this year. But the job market’s persistent sturdiness has raised doubts about whether a downturn is inevitable after all. Employers have added a strong 314,000 jobs a month this year, and at 3.7% in May, the unemployment rate is not far off a half-century low. ​​​Read more.

Analysis: How Tom Brady’s Crypto Ambitions Collided with Reality​​​

As the FTX cryptocurrency exchange imploded last fall, Tom Brady, the seven-time Super Bowl-winning quarterback, made an urgent phone call. He dialed Sina Nader, FTX’s head of partnerships, according to a New York Times analysis. The exchange’s staff was in the middle of a crisis meeting with its beleaguered founder, Sam Bankman-Fried. Mr. Nader couldn’t answer. “I never would’ve expected to decline a call from Tom Brady,” he said. Mr. Brady had reasons to be concerned. As an “ambassador” for FTX, he had appeared at the company’s conference in the Bahamas and in TV commercials that promoted the exchange as “the most trusted” institution in the loosely regulated world of crypto. His money was also at stake. As part of an endorsement agreement Mr. Brady signed in 2021, FTX had paid him $30 million, a deal that consisted almost entirely of FTX stock, three people with knowledge of the contract said. Mr. Brady’s wife at the time, the supermodel Gisele Bündchen, was paid $18 million in FTX stock, one of the people said. Now FTX is bankrupt, and Mr. Bankman-Fried is facing criminal fraud charges. Mr. Brady, 45, and Ms. Bündchen, 42, have been sued by a group of FTX customers seeking compensation from the celebrities who endorsed the exchange. On top of it all, the terms of the deal would have required the former couple, who divorced last year, to pay taxes on at least some of their now worthless FTX stock, two people familiar with the endorsement deal said. Their situation is the highest-profile example of a humiliating reckoning facing the actors, athletes and other celebrities who rushed to embrace the easy money and online hype of cryptocurrencies. During the boom times, Paris Hilton, Snoop Dogg, Reese Witherspoon and Matt Damon all gushed about or invested in crypto projects, bringing a mainstream audience to the wonky world of digital currencies. It was fun — and lucrative — while prices soared. But last year’s crash ended the celebrity crypto bonanza. ​​​Read more.

Commentary: China Is in Default on a Trillion Dollars in Debt to U.S. Bondholders. Will the U.S. Force Repayment?*​​​

Every country should pay its sovereign debt. Default, we are told, is not an option. But has anyone told China? The U.S. pays interest on approximately $850 billion in debt held by the People’s Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders, according to a commentary in The Hill. Successive U.S. administrations have chosen to sidestep this fact, allowing business and trade with China to proceed as normal. Now that the relationship with China has soured and the People’s Republic of China has become the greatest adversarial threat to the U.S. and Western security, policymakers should revisit this appalling failure of justice, according to the commentary. Before 1949, the government of the Republic of China (ROC) issued a large volume of long-term sovereign gold-denominated bonds, secured by Chinese tax revenues, to private investors and governments for the construction of infrastructure and financing of governmental activities. Put simply, the China we know today would not have been possible absent these bond offerings. In 1938, during its conflict with Japan, the ROC defaulted on its sovereign debt. After the military victory of the communists, the ROC government fled to Taiwan. The People’s Republic of China was eventually recognized internationally as the successor government of China. Under well-established international law, the “successor government” doctrine holds that the current government of China, led by the Chinese Communist Party, is responsible for repayment of the defaulted bonds. A private group of American citizens holds a large quantity of these gold-denominated bonds. This citizen-led group, the American Bondholders Foundation (ABF), serves as trustee with power of attorney for some 20,000 bondholders, whose bonds are valued at well more than $1 trillion. ​​​Read more.
*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.

abiLIVE Webinar Next Week: Bankruptcy Filing Trends Developing in the 1st Half of 2023​​​

Year-over-year bankruptcy filings have shown solid increases across most chapters through the first six months of 2023. What trends have emerged this year in consumer and business filings? How do filings compare among different stakeholders and regions of the U.S., and will the trends continue for the second half of 2023? Join ABI and statistical partner Epiq Bankruptcy Analytics for a special abiLIVE webinar on July 12 at 2:00 p.m. EDT, during which experts will discuss first-half filings, and in what direction bankruptcies may be headed. Register today to attend this free webinar; CLE credit is not available. ​​

Deadline Approaching for Norton Judicial Excellence Award

All nominations for the annual Judge William L. Norton, Jr. Judicial Excellence Award must be received no later than July 17, 2023. This award, co-sponsored by the American Bankruptcy Institute (ABI) and Thomson Reuters, honors a distinguished bankruptcy judge whose career has embodied the same dedication to the insolvency community as did that of the award’s namesake. You can view a list of the past honorees here. The award will be presented at the annual meeting of the National Conference of Bankruptcy Judges (NCBJ) in October. To nominate a candidate for the award, please download the nomination form here, and email it to Kathryn Copeland at kathryn.copeland@thomsonreuters.com.

USTP Looking for a Chapter 11 Trial Attorney​​​

The U.S. Trustee Program has a job opening for a chapter 11 trial attorney within the Executive Office for the U.S. Trustee. For the full job description, application guidelines and other information, please click here.​​​​​​ ​​​All applications must be received by July 13.

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