SPECIAL EDITION:
The unthinkable is being discussed in Congress: Should states be allowed to file bankruptcy? The Republicans say yes, and if this idea becomes law it would override state constitutions that mandate funding limits for public employee retirement funds, change retirement terms and allow some ofthe state’s debt to be written off entirely.
The short term effect would be an economic nightmare of sudden, unexpected, accountability for many holding state bonds, state debts or vested in retirement funds. And this would severely impact both the citizens and their negligent, over-spending, legislature. A state in bankruptcy would be the ultimate economic reality check. For the democratic party it would be akin to admitting they’ve been wrong all along – that they failed the people and broke the government. What else could be worse? Nothing, nothing short of a nuclear strike on party headquarters. For the republicans, who must share some of the blame, the loss of credibility could make the party morph into a version of the Tea Party or something even further to the right.
Massive debt among blue states has been accruing for decades and has only been disguised and put off through smoke and mirrors economic maneuvering, like New Jersey’s bonds or New York’s sale of state property. In other cases the debt accrual has only been since the recession cut short the overly optimistic projected revenues, but in total, 47 states are now so under water they are seeking federal bailouts or exploring the bankruptcy option.
What the long term effect of state bankruptcy will have on capitalism and citizen’s trust in government is wide open for speculation. My feeling is in the longer term we’ll be better off for having done it – but the price we will have to pay may create an extreme hardship on a society that is not prepared for it. Up till the Great Recession we’ve had it pretty good. But, when the housing bubble popped American’s were caught with too much credit debt and too little savings – predictably, bad things happened. Now, just when many of us are starting to see glints of light at the end of this recession tunnel. . . here comes all these states seeking bankruptcy relief.
This is super hot button topic in D.C. and many lawmakers hate to even speak of it. The New York Times writes, “So policy makers have been forced to work behind the scenes to change the rules, which could require a difficult constitutional amendment as states are considered sovereign by Washington.
No draft bill is in circulation yet, and no member of Congress has come forward as a sponsor, although Senator Cornyn, of Texas, asked Ben Bernanke, the chairman of the central bank, the Federal Reserve, about the possibility in a hearing this month.
Discussion of a new bankruptcy option appears to have begun in November following a speech by Mr. Gingrich about soaring debts.
“We just have to be honest and clear about this, and I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy,” he said.
Although, nothing formal has been outlines, unions are worrying about the prospects of their members losing retirement income.
Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers.
Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees told the New York Times: “They are readying a massive assault on us. We’re taking this very seriously.”
He added that public employees and their benefits were not the cause of the states’ financial problems so should not be treated as a scapegoat.
No state is known to want to declare bankruptcy, and some question the wisdom of offering them the ability to do so now, given the jitters in the normally staid municipal bond market.
If the unthinkable happens are we strong enough to endure another 4-6 years of recession or depression?
Read more: http://www.dailymail.co.uk/news/article-1349343/US-states-allowed-declare-bankruptcy-reduce-pension-bills.html#ixzz1BgrB10yy
Some things to ponder as well: almost half of our $14 trillion-dollar National Debt is owed to the Fed, which is a private consortium of banks beholding to no one but themselves.
The value of the US dollar is not tied to anything tangible, but instead, it is worth what the Fed says it is worth.
The Fed does not command an army–unless we give it the power to.
Solving our debt problesm does not have to be difficult.
As a retired public employee I find this possible solution to our deficit unacceptable. Id rather propose cutting the $1.6 billion spent last year in LA county along with similar cuts for every county spent on illegal immigrants and their children before Id take one dime from those who protect, defend and educate us. Lets first see just how much the state spends on illegals and also factor in the increased revenue generated from employing US citizens and those here with work permits.
If the states can do this, shouldn’t the feds also be considering the same solution to our national debt? Wonder how other nations will react.
But, Peggy that would make way too much sense. The liberal element now dominating government would have a cow.
If 47 states are flat broke, that means the feds are flat broke and the only thing that is keeping clothes on the emperor is the illusion of what the value of paper money is and they just keep printing more of it to cover expenses. Our currency is backed by…by what? Not gold…not silver….but, but the limited faith in the US government. We is in deep trouble! Hope nobody realizes it or we could have a run on the dollar.
Let them go bankrupt. It is the only way that the governments in question can reorganize the requirements for government employee retirement. This is what is killing the city, state, an federal government. The unions have required an unsustainable requirement! Let it die now and clean up the pieces. The unions will still get their retirements but not at the levels they require. Bankruptcy is the only way that the required payments can be adjusted
Are you saying to adjust the pention for current retired individuals or just future retirees?
It sounded like an adjustment for future retirees. Once a retirement is done it can’t be undone without causing extreme problems.
If the lawmakers would worry less about saving face and more about what might actually help their states, we’d all be better off. I think this is sad but bankruptcy may be the only way out. And the glint of end of tunnel light that you saw at the time of this writing has already been extinguished by skyrocketing oil prices. Taxpayers are suffering and cannot continue to be taxed of “fee’d” to death. Enough already.
Good luck to all,
ep