The Next Big Crisis: State Bankruptcies


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Congress, especially if it is Republican in 2011, should pass a mechanism that permits states to discharge in bankruptcy their collective bargaining agreements and contracts with their municipal unions. Of course, this procedure would have to let school boards and local governments do likewise.

Obama will veto this bill, and a stalemate will ensue.

On the left will stand Obama, the unions and the Democrats demanding bailouts for the states and, truly, an end to our federal system of government. Once Washington guarantees state debt and spending, there will be no more state governance, only national rule.

On the right will stand a Republican Congress refusing to do so unless the states declare bankruptcy and cleanse themselves of the union agreements that got them into trouble in the first place. The GOP will point out that state funding is leaking as surely as the Deepwater Horizon oil well and polluting our nation’s balance sheet as badly in the process.

The money will run out. States, school boards and localities will stop sending out checks. Emergency state funding may keep schools open, prisons locked, and police and fire services running, but otherwise all hell will break loose.

Something will give in this national game of chicken. If it is the states and Obama that blink first, we will free our local governments of the grip of municipal unions, their rigid work rules and their unaffordable pensions. If the Republicans blink first, they will forfeit their right to represent the American people, having backed down from the challenge of our times.

This Armageddon looms in 2011, presenting us with either an opportunity to reform our government in fundamental ways or to set in stone our path to an Athens-esque meltdown.

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  • Cuban Refugee

    Excellent article, and pertinent post by Nathan Bickel. There is a light at the end of the tunnel for my state of New Jersey with the Republican Chris Christie at the helm. Our new governor is putting a stop to the corrupt unions' gravy train. Christie's is taking N.J. from the brink of bankruptcy and making it whole. If only we had his fiscal twin in the Oval Office …

  • Cody Redbear

    It seems to me that we are heading into another Major Depression like that of the 1930's only and if the Government wishes to monetize its huge debt. There really is no other solution to this massive spending the Government has undertaken. The States will follow through by issuing worthless or near worthless Muni's. In effect we are all in bankruptcy. Will the pensioners cut back?, will the Unions cut back? what about State employees as to salary and benefits, will they cut back. The answer to all of these questions is a resounding NO.

  • Thunder

    UN -friggin' – BELIEVABLE!!!
    Barrrak Hussein stops all efforts to protect shores/stop oil damage……
    Who pays him for effing us up???? Un-bel-ie-vab-le
    Yo, treehuggers! You like his sabotage????

  • sflbib

    "As these deficits mount — particularly if a newly elected Republican House and/or Senate refuse to fund them — bondholders will get more and more nervous."

    Yes, and remember the fiscal crisis New York City faced about 25 years ago? There was a big debate over whether the federal government should back the city's bonds. In the end, it did, but somewhere along the line, it was revealed that THE KENNEDYS held some of the bonds. You can extrapolate from there what will happen today if some big political figures hold state bonds.

  • USMCSniper

    Want to know which states are in the worst financial condition? One telling indicator that might not immediately come to mind is where most of its citizens identify themselves as Democrats. The five states in the worst financial condition–Illinois, New York, Connecticut, California and New Jersey–are all among the bluest of the Democrat states. The three most fiscally fit states are Utah, Nebraska and Texas boast significant Republican majorities.

    • The Hammer

      Thank you. Great point. My democratic friends just don't get it however and believe this ponzi scheme can go on forever.

  • Kary

    It will be the ultimate in taxation without representation if states get ANY "bailout" money. For instance, why should the prudent people in Texas who do NOT have those outrageous pension plans or have NO pention plan at all, pay for pension plans the idiots in California knew weren't affordable when they voted for them, or voted for the people who allowed it to happen. Yeah there will be rioting in the streets if this happens.

  • USMCSniper

    There has been and will continue to be a China reduction in US debt holdings and no credit for US. The Chinese government clearly knows the game is nearly done, and is starting to pull back a large portion of its US investments towards home soil. With it’s economy out of control and headed for an implosion; they need to repatriate money to keep some semblance of order once the wheels come off in the US economy.

    The question is not if but when will China mass-dump US treasuries when they hit the wall? Some political pundits have spread this thought around in the past, pointing to China as the evil schemer in the east. In reality China will always be the ultimate pragmatists, and may see the money parked in the US as a nest egg that will be used to prime their system once the financial storm has blown over. With China focusing on saving their own skin, days of money loans or investments from China are coming to a close fast.

    • The Hammer

      Yes, this is a looming disaster no one is talking about. 13% of US federall bonds are held by China. A catastrophe in the making.

  • BOB

    LET'S PASS A BILL WHERE ANYBODY FROM DOGCATCHER UP DO NOT GET PAID UNLESS THE BOOKS SHOW A SURPLUS WITHOUT LOANS