Blog powered by Typepad

« 'Right, sir, move along, nuthin' to see!' | Main | And on the subject of money, that brings me to bankers »

Friday, 20 July 2012

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

"Where cities go today entire States might go tomorrow." Nope, States can't go bankrupt. But then they don't need to since they enjoy sovereign immunity. In other words, they can just default. (Americans are all indoctrinated to believe that the USA has never defaulted, but she did at the behest of FDR, and the spineless Supreme Court let him off with it.)

Sorry, DM, I was confusing 'bankruptcy' with 'defaulting' probabaly because the result is similar in that some poor sucker gets screwed!

Regardless of what you call it, several states are indeed on their way to bankruptcy/default. Illinois is in a huge mess, and California isn't far behind. These wounds are totally self-inflicted.

The real challenge will be preventing Washington from trying to "bail them out". It's already happened; Obama's "stimulus" was in large part a bailout of the states, via taking over some of their expenses temporarily (3 years). That's now over, so some have tried to get federal help again. So far, that's been blocked.

It really is a case of buyer beware; anyone mind-numbingly stupid enough to buy bonds issued by states that are in a fiscal mess is asking to be ripped off. However, there are a lot of unwilling people who would be hurt as well.

Still, I favor letting the states feel their pain in full: no bailouts or help. Without real pain, they'll never learn.

Incidentally, California is running massive deficits, so what did they do last week? Sign into law the 68 billion high speed rail boondoggle from Los Angeles to San Francisco. That is a total waste of money. (for those unfamiliar with California geography,the train basically has to go hundreds of miles further than a straight-line course in order to have the flat terrain it needs to run at high speed). However, even if it was a good idea, doing it when swamped with deficits is stupidity of the highest order.

The state of Illinois is the worst at the moment though... its deficit is more than half of its budget. My guess is that they will be the first to feel a real crunch.

Thanks, CJ, and I'm glad you raised the subject of the high speed train in California - I was trying to work out how to get it into my post but time ran out. And soon, the money will run out, too.

Here, too, we face austere times and what does our beloved government come up with - yes - a high speed train!

The comments to this entry are closed.