Why must I be a Canary in a Coalmine?

Detroit seems to be the first major city to head down the municipal road to hell. As I have noted before I think Meredith Whitney is correct, but early, on her municipal bankruptcy econogeddon. Looks like it will start at the city level and then topple either counties or even states before it plays out. Ultimately it will destroy the Federal finances unless a line is drawn and someone says “Drop Dead” and forces a city, county or state to straighten up and fly right. Gerald Ford was absolutely correct to do what he did wrt NY State in the 70’s. Btw he didn’t really say “Drop Dead” IIRC that was the NY Times headline. What he did say was that it was not the rest of the country’s obligation to bail out mistakes made by any given state. Best thing Ford did as President. Because of course NY did get its act together and, with some setbacks (Dinkins being a major setback), it prospered. Bloomberg may be a nanny statist (to be nice, some may call him a fascist but I think he just has tendencies, unless of course he comes out of the closet that way, which he is close to doing [Bill may disagree about that and he just may be right, but that may be another canary to study]) but NY is still in better shape than other Blue States. Barely

I called Japan and California as the states to lead the popping of the gov debt bubble. Some may disagree and cite some European sovereign or some other Blue State ItAintAHellHoleBecauseWeAreProgressiveandHaveCulture State. You may be right. I’ll stick with my calls for now, even though Detroit seems to be the Greece of Michigan today.


Why must I be a Canary in a Coalmine? — 3 Comments

  1. Um, you’ve confused New York State with the City. The headline in the Daily News was “Ford to City: Drop Dead”. We old guys remember stuff like that. NYC was well-run under Mayor Wagner, but his successor, John Lindsay, was a disaster, a frequent target of William F. Buckley’s ire.

    Your point about cities being the canary in the mine, is spot on. They’ll go bankrupt because they can. One point about states in trouble, especially California, Illinois, New Jersey, and New York, is that they’re sovereigns. They can repudiate their massive debts, and I think that may be the final act before the SHTF. As soon as one does it, others will follow, and I doubt the feds will stand by and let the bond and securities markets take such a destabilizing hit.

    The four states I mentioned have a combined debt/unfunded liabilities in the neighborhood of $1.5 trillion. The thing we should watch is how states react to their own cities’ fiscal implosions. If they limit their action to reorganization and a few high profile corruption trials, most will get by. If they start assuming the debts of their bankrupt cities, it’s going to be a long, hard road ahead.

  2. By definition, city bankruptcies threaten the livelihoods of government workers first and foremost. Which means that the blue states will not stand by and watch their most loyal supporters and voters go down the tube. We already see this in California, where municipal bankruptcies have resulted in “reorganizations” that do little or nothing to lower city workforces, pension obligations, or salaries.

    The cities will go under, the states will try to bail them out and fail, and then the states will repudiate debt. The feds will leap right down that debt hole trying to save the blue states, for the same reasons that the blue states will try to rescue their city workers.

    We’re boned, in other words.

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