Coming soon to a state near you?
The collapse of recklessly-managed state and local finances on the mainland will create a political crisis of far greater proportions than Puerto Rico’s struggles. Congress should heed Padilla’s advice and start pressuring states and localities to get back on track. It should also develop a framework for managing these meltdowns if and when they do occur (Will assistance be available? On what terms?) as they do occur, so as to avoid extended squabbling and gridlock when the rubber meets the road.
As I’ve noted in the past, a bailout of California should be done only on condition that it revert to territory status, and not be allowed to reenter the union as a single state.
…revert to territory status…
California was never a territory.
But good idea.
Perhaps “demoted” would be a better phrase, then.
Demotion sounds fine. As does the rest of your idea.
I suspect Democrats would not agree…
I read somewhere that per capita debt was greater in the states than in P.R. The coming collapse is going to be nasty. Once big states do start getting bailouts it will not take long. Find yourself a friendly rancher.
Obama, Harry Reed and Pelosi should step in as a triumvirate to rule Puerto Rico directly and solve the proble. That Brain Trust solved our financial problems, and they can do the same with our territories.
A friend of mine once spoke with the accountant of a medium sized, well-managed midwestern town. The accountant admitted that he had no idea how far in debt the town was, as the paper trail goes back to the mid 1980s when bond rates started decreasing and he couldn’t make heads or tails of the paperwork.
Karl Denninger has stated that most cities are in horrible debt. For over 30 years, cities have refinanced debt year after year because it was cheaper to borrow more at lower rates than to pay it off. They did this to build glitzy infrastructure projects to get re-elected.
You can thank Greenspan, Bernanke and Yellen for this absurd distortion of the free-market. We haven’t had true capitalism since 1913.
…cities have refinanced debt year after year because it was cheaper to borrow more at lower rates than to pay it off.
How is it possibly cheaper? Suppose I owe a million at 5%. So I borrow $50,000 to pay the interest. I now owe $1,050,000 plus the interest on the $50k regardless of if it’s higher or lower than 5%.
If I just paid the interest I’d still only owe a million.