Inflation Takes Biggest Bite from Middle-Income Households​​​

Inflation is often called a tax on the poor, but this time it’s hit middle-income households the hardest, the Wall Street Journal reported. Many low-income households, benefiting from exceptionally low unemployment rates, have found jobs and experienced wage increases that lifted income more than the cost of living, according to studies by the Congressional Budget Office and others. Many were also bolstered by federal payments during the pandemic. At the high end, many households have seen big losses in stock and bond markets, but their income and savings were large enough that they were able to keep spending aggressively. The middle has been in a vise. Purchasing power from paychecks fell 2.9% for middle-income households in 2022 compared with 2021, while rising 1.5% for the bottom fifth of households and 1.1% for the top, according to the CBO study. A growing share of middle-income households say they are having more trouble making ends meet, according to Census Bureau surveys. Median household income was $70,784 in 2021, according to the Census Bureau. Renters and student borrowers got payment deferrals during the pandemic, while many households benefited from federal relief checks. But that aid is winding down. Xavier Jaravel, an associate economics professor at the London School of Economics, found that middle-income households experienced inflation well over 15% from 2020 to 2022, compared with 14% and lower for the highest- and lowest-income households. That is mainly because of the middle’s exposure to cars and gasoline, where price increases were especially pronounced. In earlier cycles, low-income households tended to experience higher inflation. When asked for an assessment of their current financial situations by University of Michigan surveyors, the share of middle-income households who said they were worse off dropped toward levels close to those of low-income households in 2022. By contrast, in 2020, their confidence was near the levels of high-income households. When asked for the source of financial problems, middle-income households were most likely to cite inflation. Read more. 

Medical Debt Is Being Erased in Ohio and Illinois. Is Your Town Next?​​​

In the next few weeks, tens of thousands of people in Cook County, Ill., will open their mailboxes to find a letter from the county government explaining that their medical debt has been paid off, the New York Times reported. Officials in New Orleans and Toledo, Ohio, are finalizing contracts so that tens of thousands of residents can receive a similar letter in the coming year. In Pittsburgh on Dec. 19, the City Council approved a budget that would include $1 million for medical debt relief. More local governments are likely to follow as county executives and city councils embrace a new strategy to address the high cost of health care. They are partnering with RIP Medical Debt, a nonprofit that aims to abolish medical debt by buying it from hospitals, health systems and collections agencies at a steep discount. About 18 percent of Americans have medical debt that has been turned over to a third party for collection, according to a report published in July 2021 in the medical journal JAMA. That figure does not account for medical debt that is carried on credit cards or all medical bills owed to providers. Research shows that people with medical debt are less likely to seek needed care and that medical debt can damage people’s credit and make it more difficult for them to secure employment. The above initiatives are all being funded by President Biden’s trillion-dollar American Rescue Plan, which infused local governments with cash to spend on infrastructure, public services and economic relief programs. Health policy experts say that while medical debt relief provides an immediate benefit to people, it does not address the root causes of medical debt, which is almost nonexistent outside the U.S. Read more. 

Analysis: What Would It Take to Turn More Offices into Housing?​​​

There’s about 998 million square feet of office real estate across the U.S. that’s available but in search of a tenant, according to a New York Times analysis. That’s thousands of old cubicles, conference rooms, pantries and cafeterias sitting in ghostly quiet. That’s a vast amount of empty space — nearly 13 percent of the market — that could be turned into two-bedroom apartments, big-box retailers, boutique hotels, community college classrooms or even studios for artists. At least that is what city governments and developers are discussing with more urgency, as researchers estimate that office value will plunge 39 percent from pre-pandemic levels. What looks like a catastrophe to many building owners presents an opportunity, a possible catalyst for converting some older office spaces to new uses and transforming downtown neighborhoods into areas where people can also live, especially as the U.S. faces a deficit of more than 3 million homes. City and business leaders from New York, Chicago, Philadelphia and Seattle last month began a series of meetings, convened by the Brookings Institution, where they will exchange ideas on re-envisioning the future of their downtown business districts. Members of the group are gathering data on the downtown share of jobs and housing, real estate leasing trends, public safety and public transit ridership in their cities. The task force hopes to help city leaders invigorate commercial areas that have sat eerily quiet for nearly three years, even as mayors like London Breed in San Francisco and Eric Adams in New York have implored office workers not to, as Mr. Adams put it, “stay home in your pajamas all day.” Couldn’t at least some of those empty buildings be housing? Especially in cities where rents continue to rise and availability is scarce, that is one of the more compelling proposals being discussed. It’s also one of the more complex ideas, according to the analysis. Read more. 

Jobless Benefits Rolls Grow, but U.S. Labor Market Remains Resilient​​​

The number of Americans filing new claims for unemployment benefits edged higher last week, and a week earlier the total number on jobless assistance reached the highest since February, but both remain at levels indicating the U.S. job market remains tight, even as the Federal Reserve works to cool demand for labor as part of its bid to lower inflation, Reuters reported. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 225,000 for the week ended Dec. 24, the Labor Department said on Thursday, in line with the median estimate among economists polled by Reuters. Meanwhile, the number of people receiving benefits after an initial week of aid rose 41,000 to 1.710 million in the week ending Dec. 17. After hitting the lowest level since 1969 in May, those so-called continuing claims, a proxy for hiring, have drifted higher since early October. The latest report is the first since February to show them breaching the lower end of the 1.7-1.8 million trend that prevailed in the years leading up to the coronavirus pandemic, a level seen then as emblematic of a tight labor market. While the figures for new benefits claims have been choppy in recent weeks, they have held well below the 270,000 threshold that economists see as a red flag for the labor market. A raft of layoffs in the technology sector and interest-rate sensitive industries like housing have yet to leave a notable imprint on claims as laid-off workers appear to be cycling into new jobs with relative ease. Federal Reserve Chair Jerome Powell — the chief architect of the central bank's aggressive interest rate hikes aimed at bringing too-high inflation to heel — earlier this month said "it feels like we have a structural labor shortage out there." Indeed, the labor market's resilience is a central focus for Fed policymakers, as the U.S. economy has minted an average of 392,000 new jobs a month this year despite rapid rate hikes and growing fears of a recession next year. There were about 1.7 open jobs per unemployed individual as of October, roughly half a point above the openings-to-unemployed ratio seen before the pandemic. Read more. 

Opinion: A Policy Renaissance Is Needed for Rural America to Thrive*​​​

In what has become a post-election tradition, there has been no shortage of analysis the past several weeks about rural voters and their role in determining the outcome of the midterms. Yet during a visit to Shamokin, Pa., when the former mayor and the current one, both Republicans, were asked whether differences between Republicans and Democrats were affecting local efforts to revive their town, they both agreed: not really, according to an opinion in the New York Times. The town has lost almost 25 percent of its population, and the poverty rate now hovers above 30 percent. Shamokin is a cautionary tale for what happens when we lack policy solutions that can truly help places cope and adapt to major economic and social shifts, according to the opinion. Despite widespread acknowledgment since 2008 that rural places have generally been left behind, our nation still lacks a coherent federal rural policy. Almost a century ago, federal policy like the Rural Electrification Act, Title V of the Housing Act and other national-scale development programs helped bring rural America into the modern era, and its contributions helped make the American economy the envy of the world. But today’s federal programs were built for a different era. We need a renaissance of rural policy to enable a renaissance of rural America, according to the opinion. What we have are lots of programs — over 400 available for community and economic development spread across every nook and cranny of the federal government. But navigating that maze and the peculiarities of their applications, reporting and matching requirements is a high bar for anybody, let alone the part-time volunteer elected officials and the bare-bones staffs that make up many local rural governments. That leaves most rural communities starved for investment. Very few can get the type and level of resources necessary to reinvent their economy or unleash the full potential of their human, intellectual and natural capital as they face rapid change. Too often policymakers mistake agricultural policy for rural policy. Farming now accounts for just 7 percent of rural employment. Service jobs, retailing, manufacturing and government employment all outweigh agriculture. And while $163 million of the relief the Trump administration distributed during the peak of the trade war with China went to high-income farmers making more than $900,000 annually, small-scale and family farmers are increasingly taking off-farm jobs just to get by. 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. 

Mortgage Delinquency Rates Drop for the 19th Month in a Row​​​

The share of distressed mortgages in the U.S. decreased in October, falling for a 19th straight month, even as early-stage delinquencies saw a small uptick, according to CoreLogic, National Mortgage News reported. The nationwide delinquency rate, which includes all mortgages 30 days or more past due or in the foreclosure process, fell to 2.8% in October from 3.8% one year earlier. The share was unchanged on a month-to-month basis, and the percentage is currently near its lowest point in more than 20 years, the real estate data and analytics provider said. The U.S. foreclosure rate also remained near its record low of 0.3%, the same level it has stood at for the last eight months. But October’s share was up from 0.2% the previous October. The ongoing decline in distressed accounts is partly attributable to the high number of borrowers becoming current after exiting COVID-19 forbearance relief programs, which began to expire in the summer of 2021. Large amounts of home equity accrued over the past two years also allowed some borrowers to sell their properties before reaching the late stages of delinquency. Nationwide, mortgages marked as 30-to-59 days late in October increased to 1.3% from 1.2% one year prior, while loans delinquent between 60 and 90 days also saw a 1 basis point uptick to 0.4% from 0.3%. At the same time, some researchers recently said a rising number of defaults among Federal Housing Administration-backed loans should be monitored in the near future. (Subscription required.) Read more. 

Commentary: Sam Bankman-Fried’s Power Was Contingent on Belief*​​​

On Sept. 16, CNBC’s “Squawk Box” aired a segment about Sam Bankman-Fried — the chief executive, at the time, of the cryptocurrency exchange FTX — and his recent spree of acquisitions in the wake of an industry downturn. “They call him the J.P. Morgan of crypto, right?” the host asked, comparing Bankman-Fried to a financier with so much money he backstopped myriad failing banks in order to stabilize the entire financial sector. “The White Knight of Crypto,” read the text at the bottom of the screen. Two months later, the “White Knight” narrative was tossed in the office trash can and lit on fire, according to a New York Times commentary. Crypto publication CoinDesk had reported on documents that shook people’s faith in Bankman-Fried’s companies, and soon most everyone — investors, customers, employees — rushed for the doors. In a snap, Bankman-Fried was deposed as chief executive, and FTX filed for bankruptcy. The Nov. 11 edition of “Squawk Box” featured Anthony Scaramucci, whose SkyBridge Capital sold a 30 percent stake of its fund to Bankman-Fried around the time of those “White Knight” bailouts. “I don’t want to call it fraud at this moment, because that’s actually a legal term,” he said. But you sensed that he very much did want to call it fraud. The rapidity of this shift, especially in financial media, was enough to give a casual observer whiplash. In 2021, Forbes featured Bankman-Fried on its cover for its list of the 400 richest Americans, with a buoyant profile inside focused on the youthful billionaire’s promises to donate his expanding wealth. Switch to this past fall, and the magazine posted a video titled “‘Devil in Nerd’s Clothes’: How Sam Bankman-Fried Fooled Everyone.” On YouTube, the top comments on pre-collapse coverage of Bankman-Fried now tend to be sarcastic allusions to this shift. On Twitter, angry FTX customers have berated crypto journalists for their perceived failures. But the media was hardly alone in rapidly changing its tenor; almost nobody told a consistent story before and after the crash. Even among the angriest commentators, few had picked up on details like Bankman-Fried’s relative lack of philanthropy compared with all the stories about his grand plans for philanthropy. Far from being isolated, credulousness abounded, 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. 

USTP to Resume Debtor Audits in March 2023​​​

Effective March 13, 2023, the USTP will resume its designation of individual chapter 7 and chapter 13 cases for audit. These audits had been suspended in March 2020 due to public health concerns associated with the COVID-19 pandemic. As authorized in section 603(a) of Public Law 109-8, the USTP established procedures for independent audit firms to audit petitions, schedules and other information in consumer bankruptcy cases. Pursuant to 28 U.S.C. § 586(f), the USTP contracts with independent accounting firms to perform audits in cases designated by the USTP. Read more.

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