For years and years I have warned that one of the true dangers to our economic future is the fact that many cities, counties and states in America are sitting on the verge of bankruptcy. Unlike the Federal Government cities and counties can’t “print money”, all they can do is tax and borrow to raise money. The way they borrow is via selling bonds, these are called “municipal bonds”. A text book explanation of a municipal bond would be,
A municipal bond is a bond issued by an American city or other local government, or their agencies for the purpose of financing the infrastructure needs of the issuing municipality. These needs vary greatly but can include schools, streets and highways, bridges, hospitals, public housing, sewer and water systems, power utilities, and various public projects.
However a more accurate way to describe a municipal bond would be – A way for a government body to borrow money in order to pay for things it can not afford so the people today can have something their children will be forced to pay for with interest added on tomorrow. Currently there are billions upon billions of dollars in debt issued as this type of bond and many of them are propping up cities, counties or states that would have been bankrupted long ago with out them. The problem is this is exactly like using your MasterCard to pay the Visa people, it can only go on for so long.
Currently Providence Rhode Island is sitting on the verge of bankruptcy, in fact an honest man by the name of Robert Flanders said recently that not only was bankruptcy likely for Providence but “I don’t see how they can get out of it without going there“. Such honesty is rare but more rare would have been for such honesty to be rewarded, in this case it certainly wasn’t.
What the Mayor did was fire Mr. Flanders and his firm saying that, his comment was “unacceptable”. The mayor hasn’t claimed that the city isn’t going bankrupt, simply that saying it is again, “unacceptable”. He also said, “Providence is not Central Falls,” along with, “We’ve already accomplished much in our work to put Providence back on firm financial ground.” Notice he doesn’t say, the city won’t go into bankruptcy? Why? Because the city is teetering on it right now and likely will at some point.
The key thing to take away from this is that this isn’t really about Mr. Flanders, Mayor Taveras or even Rhode Island. No what you see here is the reality that all these cities are trying to hide and how they go about doing so. They simply say that any talk of bankruptcy is nonsense and unacceptable right up until they end up in bankruptcy and at that point they blame someone else. The key is they are all hiding the reality that money has been borrowed that many cities and counties will never be able to pay back or that obligations have been made in the form of pensions and entitlements that can never be met.
In short when faced with the truth they lie and continue on with business as usual and hope no one pays attention. Keep this in mind and please have a plan for an eventual economic day of reckoning. Between the Federal Debt, the reality that Medicare, Medicaid and Social Security are underfunded by over 100 trillion dollars in future obligations, the fact that the interest on the national debt alone is now our 4th largest expense and over 100 cities are in danger of bankruptcy can lead any honest person to one conclusion. Some day soon the bills will come due and the people that caused the problem will be long gone by then leaving you and your children holding the bag. We only need to look to Argentina and Greece to see where that road leads.