The Recovery will be K-shaped: “Bifurcated” not “V-Shaped”

There will be no V-, U-, W-, or L-shaped recovery. The recovery will be K-shaped. An initial drop straight down, followed by a bifurcation of the ascending “haves” gaining more wealth at the cost of the descending “have nots” losing their wealth. You have a short window of opportunity to choose which side of the bifurcation that you want to take.
bonsai treehouse
If you understand “economic hitmen“, you’ll understand that people, companies and even countries are allowed to get over leveraged for a reason. There is no intention to save those over leveraged. The intent is to take assets they want – legally.
Whenever a company brings in an “optimization” company, you better start sprucing up that resume. I’ve seen it happen so many times. Prepare for the pinks, don’t ever be surprised by it.
Saw this same thing with Doctors offices in my area. These management services, rolled into town. They promised an increase in profits. The docs jumped in with both feet. Long time employees jumped ship because part of the restructuring double their workload. New computer systems did not delivery efficiency. Retraining new employees ended up being costly. The family atmosphere of the old practice disappeared and it quickly became a factory environment. Patients started going to other providers for better care. Some of the practices split from their partnerships due to bad blood caused by the ill treatment of long time devoted employees. End result was loss of profits and weakening relationships to the point that the local monster sized hospitals were able to come in a buyout those practices for a song. Here is the thing. All these docs were warned not to do this. Only a couple practices heeded the advice. They survived the other practices didn’t.
The writing appears to be on the wall. The Fed reports, NBER reports, and others are pretty damning. Kashkari has also mentioned he is concerned about banks being unable to absorb the coming wave of defaults he expects are very possible. Also now people are realizing the markets being propped up are creating a bubble if not keeping a bubble going and growing. Save your money people and pay off your debts. Very tough road ahead of us. It’s so unfortunate that our economy is failing so hard and people don’t seem to grasp the harsh reality that we are facing.
Housing: 20 years ago you could buy an average house 2x your average annual salary (in your location)…. now its 5x+. Think about it….
The one thing I learned in business: Any rumor about how bad a business youre working at is doing is always 100% true Any assurance your manager gives you about how youre bad business is gonna turn around is always 100% a lie
That’s why people like Warren Buffet is sitting on the sidelines and waiting.

Bankruptcy Are Coming, Signs All Around

I witnessed first hand the closing of two company’s. Both suffered from large debt and too little revenue. The similarities are eerily familiar. Business defaults and bankruptcies are on the rise.

  • https://m.startribune.com/another-wave-of-megabankruptcies-is-coming-experts-say/571381212/
  • https://curated.tncontentexchange.com/finance/how-private-equity-is-gutting-retail/video_7c9b7c5f-29bb-5574-8f04-606957338951.html
  • https://www.forbes.com/sites/mayrarodriguezvalladares/2020/06/20/corporate-defaults-this-year-are-likely-to-surpass-the-mountain-of-great-recession-defaults/
  • https://www.evidenceinvestor.com/how-good-an-investment-is-private-equity-honestly/

Why Mitch McConnell Wants States to Go Bankrupt

The Senate majority leader is prioritizing the Republican Party rather than the American people during this crisis.

American states are abruptly facing their worst fiscal crisis since the Great Depression. The Center on Budget and Policy Priorities estimates that more than 25 percent of state revenues have evaporated because of the pandemic. Demands on state health-care budgets, state unemployment systems, and state social-welfare benefits are surging. By the summer of 2022, the state budget gap could total half a trillion dollars.

States need help. Senate Majority Leader Mitch McConnell does not want to provide it. On The Hugh Hewitt Show on April 23, McConnell proposed another idea. Instead of more federal aid, states should cut their spending by declaring bankruptcy:

I would certainly be in favor of allowing states to use the bankruptcy route. It saves some cities. And there’s no good reason for it not to be available. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of.”

McConnell expanded on the state-bankruptcy concept later that same day in a phone interview with Fox News’s Bill Hemmer:

We’re not interested in solving their pension problems for them. We’re not interested in rescuing them from bad decisions they’ve made in the past, we’re not going to let them take advantage of this pandemic to solve a lot of problems that they created themselves [with] bad decisions in the past.

McConnell’s words instantly attracted attention, criticism, even some derision. New York Governor Andrew Cuomo blasted the idea as “dumb,” “irresponsible,” and “petty”:

How do you think this is going to work? And then to suggest we’re concerned about the economy, states should declare bankruptcy. That’s how you’re going to bring this national economy back? By states declaring bankruptcy? You want to see that market fall through the cellar? … I mean, if there’s ever a time for humanity and decency, now is the time.

Cuomo’s fervent rebuttal grabbed the cameras. It did not settle the issue. State bankruptcy is not some passing fancy. Republicans have been advancing the idea for more than a decade. Back in 2011, Jeb Bush and Newt Gingrich published a jointly bylined op-ed advocating state bankruptcy as a solution for the state of California. The Tea Party Congress elected in 2010 explored the idea of state bankruptcy in House hearings and Senate debates. Newt Gingrich promoted it in his run for the 2012 Republican presidential nomination.

To understand why Republicans want state bankruptcy, it’s necessary to understand what bankruptcy is—and what it is not.

A bankruptcy is not a default. States have defaulted on their debts before; that is not new. Arkansas defaulted in the depression year of 1933. Eight states defaulted on canal and railway debt within a single year, 1841. The Fourteenth Amendment required former Confederate states to repudiate their Civil War debts

A default is a sovereign act. A defaulting sovereign can decide for itself which—if any—debts to pay in full, which to repay in part, which debts to not pay at all.

Bankruptcy, by contrast, is a legal process in which a judge decides which debts will be paid, in what order, and in what amount. Under the Constitution, bankruptcy is a power entirely reserved to the federal government. An American bankruptcy is overseen in federal court, by a federal judge, according to federal law. That’s why federal law can allow U.S. cities to go bankrupt, as many have done over the years. That’s why the financial restructuring of Puerto Rico can be overseen by a federal control board. Cities and territories are not sovereigns. Under the U.S. Constitution, U.S. states are.

Understand that, and you begin to understand the appeal of state bankruptcy to Republican legislators in the post-2010 era.

Since 2010, American fiscal federalism has been defined by three overwhelming facts.

First, the country’s wealthiest and most productive states are overwhelmingly blue. Of the 15 states least reliant on federal transfers, 11 are led by Democratic governors. Of the 15 states most reliant on federal transfers, 11 have Republican governors.

Second, Congress is dominated by Republicans. Republicans controlled the House for eight of the last 10 years; the Senate for six. Because of the Republican hold on the Senate, the federal judiciary has likewise shifted in conservative and Republican directions.

A state bankruptcy process would thus enable a Republican Party based in the poorer states to use its federal ascendancy to impose its priorities upon the budgets of the richer states.

When Cuomo protested McConnell’s bankruptcy idea, the New York governor raised the risk of chaos in financial markets. But McConnell does not advocate state bankruptcy in order to subject state bondholders to hardship. Obviously not! When McConnell spoke to Hewitt about fiscally troubled states, he did not address their bond debt. He addressed their pension debt. State bankruptcy is a project to shift hardship onto pensioners while protecting bondholders—and, even more than bondholders, taxpayers.

Republican plans for state bankruptcy sedulously protect state taxpayers. The Bush-Gingrich op-ed of 2011 was explicit on this point. A federal law of state bankruptcy “must explicitly forbid any federal judge from mandating a tax hike,” they wrote. You might wonder: Why? If a Republican Senate majority leader from Kentucky is willing to squeeze Illinois state pensioners, why would he care about shielding Illinois state taxpayers? The answer is found in the third of the three facts of American fiscal federalism.

United States senators from smaller, poorer red states do not only represent their states. Often, they do not even primarily represent their states. They represent, more often, the richest people in bigger, richer blue States who find it more economical to invest in less expensive small-state races. The biggest contributor to Mitch McConnell’s 2020 campaign and leadership committee is a

  1. PAC headquartered in Englewood, New Jersey. The second is a
  2. conduit for funds from real-estate investors. The third is the
  3. tobacco company Altria. The fourth is the
  4. parcel delivery service UPS. The fifth is the
  5. Eli Lilly pharmaceutical corporation. The sixth is
  6. the home health-care company, LHC Group. The seventh is the
  7. Blackstone hedge fund. And so on and on.

A federal bankruptcy process for state finances could thus enable wealthy individuals and interest groups in rich states to leverage their clout in the anti-majoritarian federal system to reverse political defeats in the more majoritarian political systems of big, rich states like California, New York, and Illinois.

No question, many states face serious problems with their unfunded liabilities to state retirees. Illinois’s liability nears $140 billion, and its municipalities are liable for additional billions. California’s state and local unfunded liabilities amount to $1.5 trillion.

Those liabilities are often described as “pension” liabilities, but they are driven above all by faster-than-expected increases in retiree health-care costs. They need to be addressed, and addressing them will be a tough policy challenge. It will be a tough legal challenge, too, since those liabilities are often—as in Illinois—inscribed into the state’s constitution.

Difficult and important as these problems are, they are not urgent problems. They existed 24 months ago; they will remain 24 months from now. From a strictly economic point of view, McConnell’s schemes for state bankruptcy are utterly irrelevant to the present crisis. Reducing future pension liabilities will not replenish lost revenues or reduce suddenly crushing social-welfare burdens.

But McConnell seems to be following the rule “Never let a good crisis go to waste.” He’s realistic enough to recognize that the pandemic probably means the end not only of the Trump presidency, but of his own majority leadership. He’s got until January to refashion the federal government in ways that will constrain his successors. That’s what the state-bankruptcy plan is all about.

McConnell gets it. Now you do, too.