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Since US States can't declare bankrupcy, what happens when they cant pay their debts?

JEDI

JEDI

Lifer
is the Fed govt obligated to cover them?

or will the state just default like Greece?
(ie: NJ's massively underfunded pension problems that will bite them next decade)
 
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What would the consequences be if they did default? I really don't see how they can possibly cover the gap that they have now.
 
The feds bail them out. Kinda like the EU and Greece. California got lucky because of the rich getting huge profits off their investments. Since CA gets the majority of it's funding from the 'rich', once the economy tanks again, the budget will inevitably crash again.
 
If my memory is correct, Michael Lewis addressed this issue in Boomerang.

His position was that the Federal and State Governments could always turn to unfunded mandates and consequently would not go bankrupt. It was the cities that would go bankrupt.

Vanity Fair has a chapter from Boomerang online. An excerpt:
What happens when a society loses its ability to self-regulate, and insists on sacrificing its long-term interest for short-term rewards? How does the story end?

... a true story, which might be called the parable of the pheasant. Last spring, on sabbatical from the University of Oxford, he was surprised to discover that he was able to rent an apartment inside Blenheim Palace, the Churchill family home.

The previous winter at Blenheim had been harsh, and the pheasant hunters had been efficient; as a result, just a single pheasant had survived in the palace gardens.

This bird had gained total control of a newly seeded field. Its intake of food, normally regulated by its environment, was now entirely unregulated: it could eat all it wanted, and it did.

The pheasant grew so large that, when other birds challenged it for seed, it would simply frighten them away. The fat pheasant became a tourist attraction and even acquired a name: Henry.

“Henry was the biggest pheasant anyone had ever seen,” says Whybrow. “Even after he got fat, he just ate and ate.” It didn’t take long before Henry was obese. He could still eat as much as he wanted, but he could no longer fly.

Then one day he was gone: a fox ate him.
Click to expand...
Depending on your perspective, (pheasant or fox) I guess that that could be a sad or a happy ending.

Uno
 
Pneumothorax said:
The feds bail them out. Kinda like the EU and Greece. California got lucky because of the rich getting huge profits off their investments. Since CA gets the majority of it's funding from the 'rich', once the economy tanks again, the budget will inevitably crash again.
Click to expand...

didn't france try that and raise taxes HIGH on the rich?
it worked the 1st year and the influx of $ balanced the budget. but france didn't learn and kept spending.
the rich just left the country.
france repealed the high tax law because when all you have is the poor left in the country, the country is doomed.

did CA cut spending after they raised state taxes to 10% for the rich living in the state?
is it still 10% or did they repeal it?
 
They sell more bonds. When enough of these bonds rack up, the Fed will buy them and goldman sachs will make $6 billion off the deal somehow.
 
I live in NJ and teacher's pension is bankrupt.

IMO, we have a few options.

1) Raise taxes across the board. Property, sin, road, gas, etc... Raise it all so we can get the pension fiasco under control. The only thing is most people aren't going to like this idea. I have buddies who pay $12,000 in property taxes. I doubt they are going to want to pay anymore.

2) Major reform. This is the true alternative, but the unions are going to resist this till the end of times. A cop retires at 50. He lives for the next 30 years on the taxpayer dime. What makes it worse is they usually leave NJ and live in another state. The people who continue to live in NJ have to foot the bill. Times this by thousands of retires. It's a recipe for disaster.

I love how you people rely on the government. The government will fix it! The government will fix it! Stop relying on the government for everything. There is going to be a time when our government will not be able to pay for it. What are you going to do then?
 
JEDI said:
didn't france try that and raise taxes HIGH on the rich?
it worked the 1st year and the influx of $ balanced the budget. but france didn't learn and kept spending.
the rich just left the country.
france repealed the high tax law because when all you have is the poor left in the country, the country is doomed.

did CA cut spending after they raised state taxes to 10% for the rich living in the state?
is it still 10% or did they repeal it?
Click to expand...

The higher taxes are set to expire soon, but guess what? In typical liberal fashion, the democrats in Sacramento are already clamoring for permanent extension of a 'temporary tax' along with significantly increased spending. This also includes 'free healthcare' (Medi-Cal/Obamacare) for illegal kids!
 
JEDI said:
didn't france try that and raise taxes HIGH on the rich?
it worked the 1st year and the influx of $ balanced the budget. but france didn't learn and kept spending.
the rich just left the country.
france repealed the high tax law because when all you have is the poor left in the country, the country is doomed.

did CA cut spending after they raised state taxes to 10% for the rich living in the state?
is it still 10% or did they repeal it?
Click to expand...

That is why we need an international tax on the rich.
 
IIRC, IL could have potentially broken contract agreements if they defaulted. Some contracts were insulated from that, but others were not.
 
JEDI said:
didn't france try that and raise taxes HIGH on the rich?
it worked the 1st year and the influx of $ balanced the budget. but france didn't learn and kept spending.
the rich just left the country.
france repealed the high tax law because when all you have is the poor left in the country, the country is doomed.

did CA cut spending after they raised state taxes to 10% for the rich living in the state?
is it still 10% or did they repeal it?
Click to expand...

10%? more like 13.6%. and CA is run by liberals, you think theyd ever turn down your money?
 
Mai72 said:
I live in NJ and teacher's pension is bankrupt.

IMO, we have a few options.

1) Raise taxes across the board. Property, sin, road, gas, etc... Raise it all so we can get the pension fiasco under control. The only thing is most people aren't going to like this idea. I have buddies who pay $12,000 in property taxes. I doubt they are going to want to pay anymore.

2) Major reform. This is the true alternative, but the unions are going to resist this till the end of times. A cop retires at 50. He lives for the next 30 years on the taxpayer dime. What makes it worse is they usually leave NJ and live in another state. The people who continue to live in NJ have to foot the bill. Times this by thousands of retires. It's a recipe for disaster.

I love how you people rely on the government. The government will fix it! The government will fix it! Stop relying on the government for everything. There is going to be a time when our government will not be able to pay for it. What are you going to do then?
Click to expand...

Haaayyyyy you're from NJ no surprises there. I would have packed up my shit and moved out of NJ when I was 18. I would have bicycled to a different state if I had to.
 
JEDI said:
is the Fed govt obligated to cover them?

or will the state just default like Greece?
(ie: NJ's massively underfunded pension problems that will bite them next decade)
Click to expand...

Illinois will fall off the cliff long before NJ, if you want a first glimpse of how this country will handle broke states unable to pay their bills. Currently the way things are handled is those who provides services to/for the state (and don't have strong inside political connections) get paid for their services many months, sometimes years late.

Pensions cannot be changed, guaranteed by the state constitution. So we're replacing as many public schools as we can with private charter schools to limit the numbers drawing pensions in the future.
 
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In my country most cantons have adopted the debt brake system, as well as the confederation, to avoid long-term debt (within an economic cycle it can be used, but it should be paid back when you're in a growth phase again), and most importantly there is an horizontal equalization system among states that helps avoid drifts into the abyss like the one Greece was sent into (the eurozone has no serious solidarity mechanism), so right now it should be impossible for a state to default.
Before it came to this, nothing ever happened.

Also no cities that I know of ever defaulted, and that's a miracle considering the huge holes in pension systems that sometimes come up.

Still, it will be useful so see what happens in the US.

What I don't understand about federated states defaulting, is how they could keep paying contributory pensions (i.e. not the minimum pension/welfare for old people paid through tax money) after they've defaulted despite not having a central bank that can print out money or switch currency.
Even if the feds pay the denbts and you start from zero, the fund is gone.
 
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OverVolt said:
Haaayyyyy you're from NJ no surprises there. I would have packed up my shit and moved out of NJ when I was 18. I would have bicycled to a different state if I had to.
Click to expand...

I tell people that if they want financial freedom they need to be proactive.

How? Well you can at least start by reading more instead of looking at the boob tube for 5 hours a day. I then tell them to start with "The Richest Man from Babylon" and they look at me like I'm nuts.

Why do people rely on the government for financial advice is beyond belief. Take control of your own life by educating yourself. IMO, reading is the first step.

I love this little story. It's an old story so adjust the figures.

Jim Rohn once asked a tv viewer how much his Tv cost. He told Jim $450 Jim told him he thinks the TV is costing him much more than $450 He told the TV viewer that in his opinion the TV is costing him between $12k a year. Jim said "Owning it is cheap, watching it is what's expensive and $12,000 a year is too expensive to watch TV."

Think about it. Instead of developing their financial skills by reading most people would rather watch 5 hours of TV per night. Then they complain that they have no money in their account.

https://www.facebook.com/jimrohndailyquote/posts/465503170187516
 
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