On the April 14th episode of Dr. Jim White’s live Opportunity Investing webinar series, White addressed his followers on the issues impacting the US as a result of the growing Coronavirus pandemic. As the themes of White’s series adjusted to relevant topics affecting the US and the world today, Dr. White took the time to discuss the potential unemployment crisis that our country faces.
As we began the fiscal year in January 2020, the unemployment rate was 3.6%. Today, the rate has increased to approximately 13%, and with over 17 million new unemployment applications filled in the past 4 weeks, economists predict that the rate could sky-rocket to as high as 32%. With the current economic crisis as it is, experts project that the US economy will shrink by 40%. Given COVID-19’s reach through the economy, bankruptcy provides a major threat, and as one company’s inability to pay a bill weakens the financial health of another, a chain reaction of economic distress occurs. Though the health and wellness of the citizens of the United States is the number one priority, Dr. White spoke on the different avenues that policymakers should take to mitigate economic risk.
To avoid a major economic crash, Dr. White detailed a ‘too connected to fail’ policy aimed at policy makers and business owners. “To mitigate risk,” White spoke to his audience on Tuesday evening, “companies and countries need a ‘too connected to fail’ policy to provide liquidity to companies whose bankruptcies stand to have the biggest ripple effect.”
White introduced three options to alleviate economic risk, the first suggesting that governments can improve companies cash flows by boosting demand for their products and providing additional income to displaced workers.
The second avenue White recommended to policymakers was the allowance of a massive wave of bankruptcies, while still allowing businesses to operate despite being bankrupt. White noted that the bankruptcy system may not be able to handle such a massive amount of filings, adding that bankruptcy is not as painless as some people suggest. With evidence suggesting that in the seven years following a company’s bankruptcy, worker’s wages will fall two-thirds, and by an additional ten percent in the first year. “An economy with a substantial share of its firms going through bankruptcy would be a disaster zone for years to come.” White warned.
“An economy with a substantial share of its firms going through bankruptcy would be a disaster zone for years to come.”
Thirdly, White recommended minimizing bankruptcies among the most sympathetic companies. The targeted relief that the US government is providing to small and medium-sized enterprises reflects this approach. Although the government has begun the process of this, White argues that the government simply isn’t doing enough to stimulate the economy. “As policymakers consider their next move, they should also acknowledge that so far they’ve done too little to head off the risk of cascading bankruptcy.” White addressed the policymakers, business owners and individuals tuned into the lecture.
“Policymakers have done too little to head off the risk of cascading bankruptcy.”
All of these avenues reflect White’s ultimate recommendation of the ‘too connected to fail’ policy. White advocated for business owners reaching out to vendors and customers to create a chain regarding the flexibility of buying and selling of products and services. White praised the act of coming together to see how everyone can help each other out. For business owners and policymakers, White’s message is clear: create avenues to help each other as we remain linked. To individuals, Dr. White’s message was one of tough love: always have money in reserve, even if you live paycheck to paycheck. We live too close to the edge in America, and using economic resources at a rapid pace could be disastrous.
Greenwich resident Jim White, PhD is chairman and CEO of Post Harvest Technologies, Inc. and Growers Ice Company, Inc., founder and CEO of PHT Opportunity Fund LP, and founder and president of JL White International, LLC. His new book is “Opportunity Investing: How to Revitalize Urban and Rural Communities with Opportunity Funds.” He holds a bachelor of science degree in civil engineering, an MBA, and a doctorate in psychology and organizational behavior.
Dr. White is hosting his regular Opportunity Investing Webinar Series intended to educate and provide a roadmap to Qualified Opportunity Zones and Qualified Opportunity Funds. His next webinar goes live on April 21 at 6:30 PM EST. It’s dedicated to investing in Qualified Opportunity Zones during and post COVID-19. Register now to join the conversation.