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Some other government could (federal), but not the municipal or state governments. That’s the rub here. These liabilities are hanging around the necks of gover
by function_seven 8y ago
Some other government could (federal), but not the municipal or state governments.
That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.
- omegaworks 8y agoBailouts are a tried and true mechanism for addressing this liquidity problem for the private sector. I don't see why it shouldn't apply here.
- rayiner 8y agoIn the private sector, bailouts were used to address a liquidity problem—if the companies could survive the crunch, they could be in a position to pay the money back. Municipalities aren’t facing a liquidity problem—they’re insolvent. They owe far more than they can ever hope to pay back, because their tax bases aren’t growing at the rates needed to make their obligations manageable.
- function_seven 8y agoI don’t disagree in the abstract. But Erie can’t tell its municipal bond holders, “Don’t worry, we’ll just wait for the bailout. Your debt is safe” This would make a potential future crisis an actual current one.
- rmilk 8y agoThe question then becomes how to acquire the money for the bailout. You can’t just ask for money or acquire funding through buyout. Tax increases or bonds are really the only sources of money, and they require voter approvals. Costs can be reduced by cutting services or through bankruptcy, both of which bring their own side effects by reducing the appeal of the city or county or by making future debt more expensive. See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments. http://www.cacities.org/2018PensionSurvey http://www.cacities.org/2018PensionSurvey