Bankruptcy is usually shameful, but not always. It means something has gone seriously wrong. Sometimes it cannot be foreseen, as when serious illness or death of a key person means survivors can’t make payments or keep a business running. No shame there. Others are willing to help in those situations.
When bankruptcy results from irresponsible behavior, there is shame, or should be. Those undergoing it shouldn’t be trusted with authority or power until they demonstrate change. When the hammer falls on them, they try to shift blame for their ineptitude and others are disinclined to help.
What does it look like when governments go bankrupt? We get an idea watching cities deal with it. The most recent is Stockton, California, which has many problems but like most governments, their biggest problem is pensions. Politicians promised more than governments could deliver but they don’t want to admit that. Cities are facing the same crunch our federal government is, but neither Stockton nor the feds want to take responsibility. They’re looking for others to blame and observers are not inclined to help until they admit culpability.
When discovering it couldn’t pay for pie-in-the-sky pensions, Stockton didn’t cut back. Instead, it borrowed money by issuing bonds. Now, it cannot afford to pay for either pensions or bonds and is trying to stiff bondholders. Better to confront investors than confront government unions. They’ll have to scale back pensions too, but they’re refusing to for now. Bond holders will lose almost $200 million. Can’t imagine who would ever lend money to Stockton again, so how will it pay for those pensions now? One former police chief retired at $204,000 a year after serving only eight months. How can this continue? How many times can a city go bankrupt?
San Bernardino went bankrupt too, a few months before Stockton. One third of its 210,000 thousand citizens are below the poverty line but a police lieutenant can retire in his fifties at $128,000 a year, and, according to Reuters, that’s after getting “$230,000 in one-time payouts on his last day.”
Unions provide campaign contributions go to politicians who vote them pension benefits. Want to guess which political party gets those union contributions? Hint: it isn’t the Republicans. Democrats will bankrupt a city before confronting the unions.
A Detroit city councilwoman asked President Obama for a bailout last month: “Our people in an overwhelming way supported the re-election of this president and there ought to be a quid pro quo,” she said. Maybe she didn’t hear that President Obama is busy trying to dodge a bankruptcy crisis of his own.
States are in flirting with bankruptcy too and for the same reasons: Government union pensions, especially for teachers, police and firemen. Even a liberal news outlet like the Huffington Post admits there’s a crisis: “[Illinois has] the nation’s worst case of underfunding state employees’ pensions,” it declared, “a problem approaching $100 billion and mounting by $17 million per day.” Illinois recently raised income taxes by 62% but even that didn’t make a dent.
Several other states are in danger of bankruptcy too. Will states that manage their affairs be expected to bail out states that don’t? I hope not. Will federal Democrat “leaders” try to bail out fellow Democrats running blue states? Will the United States itself go bankrupt? These are open questions as we watch irresponsible political “leaders” limp along with last-minute deals and continuing resolutions month to month.
There’s one important difference between the feds and the states: the US government can print money. States cannot. Democrats who control both the White House and the Senate refuse to deal with our looming unfunded liabilities in Social Security, Medicare and Medicaid. Observers with rudimentary knowledge of arithmetic see impending bankruptcy unless there are huge cuts immediately. When federal Democrats try to borrow more money, creditors are reluctant to lend. Bond sales have few buyers, so what to do? Get the Federal Reserve to create digital money out of thin air and buy up unsold bonds.
Do our Democrat leaders think we’re any different than Weimar Germany or Zimbabwe? Do they think they can print funny money forever without inflationary consequences? I guess. Will they ever admit their New Deal and Great Society predecessors promised more than they could deliver? Not likely. Meanwhile, they blame “the rich” for “not paying their fair share” as if taking more from them will make it all add up.
It won’t. Even if we took 100% of what “the rich” make, it wouldn’t put a dent in our ever-expanding debt. Thus we drift toward unparalleled catastrophe – because if we go belly up, there’s no one else left out there to fix it.
Family Security Matters Contributing Editor Tom McLaughlin is a (now retired) history teacher and a regular weekly columnist for newspapers in Maine and New Hampshire. He writes about political and social issues, history, family, education and Radical Islam.