Can States Go Bankrupt & Are There Exceptions to the Unfunded Pensions?
QUESTION: Martin,
I have enough years in to retire from the state of Florida.
Obviously, large cities can be bankrupt (Detroit, Chicago may be next).
Florida’s pension plan is about 85% funded and in the top 10 states that have well funded pension plans.
Do you think it is possible for an entire state to declare bankruptcy?
If so, when?
I know I’m asking a lot.
Thanks for you opinion….P
ANSWER: Some states do have money. I directly speak to some fund managers states that are managing state pension funds. They have had to shift to equities because they cannot meet obligations. The danger is the Federal government comes rushing in to help i.e. its SAFE ACT. They are more likely than not to seize control of all pension funds and the spread the wealth and try to fix the problem that way.
Can a state go bankrupt? Yes they did and that was the after the Panic of 1837. They were related to the Jackson’s shutting down the Bank of the US that ended up in States having to bailout banks. In 1841 and 1842, eight states and the Territory of Florida defaulted on their sovereign debts. Traditional histories of the default crisis have stressed the causal role of the depression that began with the Panic of 1837, unexpected revenue shortfalls from canal and bank investments as a result of the depression, and an unwillingness of states to raise tax rates. None of these stylized facts fits the experience of states at all. The majority of state debts in default in 1842 were contracted after the Panic of 1837.
In truth, the sterilized history has sought to deflect the blame from Andrew Jackson’s destruction of the Bank of the USA whereby this produced the famous Broken Banknote Crisis of the era as the state banks collapsed. Most states did not expect canal investments to return substantial revenues by 1841 and so could not experience unexpected shortfalls in those revenues. Additionally, most states were willing to raise tax rates substantially, so the Marxists who were against banks and the rich crafted the history to support their views.
The real relationship between land sales and land values explains much of the timing of state borrowing and the default experience of western and southern states. Pennsylvania and Maryland defaulted because they postponed the imposition of a state property until it was too late.
Jackson’s destruction of the Bank of the US was coupled with his moving federal deposits to state banks and that gave the wrong impression that any state bank was somehow better. They all issued their own currency and much of it was just a scam. The debts taken on by the States were to try to support the banks and land prices following the Panic of 1837. It was this issue of debt that was defaulted on. Even the Bank of England still has on its books bonds from some of these states that were defaulted on permanently.
Unfunded Pensions Are Our Doom
The standard pension systems of governments from Europe to the States are all the same. They have assumed that taxes would be an endless pit. They have promised pensions to people and never funded them. Anyone in the private sector would go to jail for creating such schemes. Historically, the people rise up when they realize they have been fooled once again by government. In England, they too are discovering the same system that collapsed Detroit is alive and well there also. The Daily Mail has reported that 25% of all taxes in a municipal council go to pensions. They cannot see that operating in this fashion will cause and economic implosion. For every person who retires, they must hire another. This is sending taxes higher and the cost of government to double within the next 10 years.
Those who have claimed there would be hyperinflation assume that government can and will simply print money to cover the expense. But state and local government cannot print money. The majority of governments are in a massive collapsing spiral and this is DEFLATION for as taxes rise, disposable income declines, and eventually they cannot collect in taxes what they need to keep the game afoot.
When this type of system came to a head in the city of Mainz during the 15th century, they chased all the producers out by raising taxes and were left with a gutted economy much like Detroit. Mainz had been the birthplace of the Guttenberg printing press and this created a huge economic boom. The politicians thought this would never end and spend more than the future could pay.
•By 1411, gov’t expenditure. 48% due to annuities it had issued.
• By 1437, gov’t expenditure. 75% was going to the creditors and interest rates continued to rise.
• By 1448, Mainz was forced into bankruptcy when there were no longer buyers for its debt.
The City of Mainz defaulted on their debts. The foreign holders of their debt sacked the city and then burned it to the ground. Government is incapable of ever designing any system when it comes to money. Social Security in the States is the same system. Look at Obamacare. There is nothing government is ever capable of doing that ever honestly benefits society in a fair and sustainable manner. We need serious structure reforms and the recognize that government has to be restrained to save society from self-destruction.
Swiss Democracy – Very Interesting
In Switzerland, many issues go directly to the people to vote on. Unfortunately, not everything. The Swiss bureaucrats themselves destroyed the Swiss banking system by agreeing to draw the line at 2008 for any liability a bank might have to the US government for an account an American might have had. The value of Swiss banks has collapsed. Why? If you bought one that was worth $100 million before for even $10 million, the due diligence will cost you twice that and then who knows. The US can say you had an account for an American who did not pay their taxes and they will fine you $100 million. There is no limit to the risk you inherit. There are numerous small banks that are on the verge of shutting down and they cannot even be sold because it is not who their clients are today, but who they might have been in the past.
On Sunday, the people proved that they are far better decision makers than bureaucrats. In a Swiss Federal referendum, the people rejected Marxist programs of the Socialists across the board. The people did not want to raise the price of the motorway vignette by even 100 francs rejecting this as 60.5% of the total vote. The Swiss people also rejected an initiative of the UDC for tax breaks for parents with care giving by 58.5% of the vote, and the limitation of CEO salaries that would prevent them from earning more than 12 times the lowest wage earner in the company. They rejected this initiative by a staggering 65.3%. In all cases, this was a bigger majority than any US President, including FDR in 1932, has ever been elected to office..
If all tax increases had to go to the public in Europe and the USA, they would be rejected. Governments have evolved under these fake Democracies that are really masquerading Republics that are truly Oligarchies, where they always vote against the people they pretend to be “representing”. The Swiss have demonstrated that putting issues to the people produce real engaged results.
The Internal Battle Within Ukraine – Strategically Quite Important
There is an internal struggle in Ukraine that is tearing the nation in two manifest in its capital at Kiev. The struggle tends to be between the East and West. Ukraine was actually Europe’s second largest country during the twentieth century, occupies 232,200 square miles (603,700 square kilometers).
There is a battle going on inside Ukraine where many want to align with the EU and the East wants to align with Russia. There are signs everywhere warning about joining the EU that it will cause deflation and loss of employment. Many from the East want Russian even to be the national language. This struggle is starting to lead to civil unrest as the government suddenly turned direction from Europe to Russia.
Ukrainian nationhood begins with the Kyivan Rus. This Eastern Slavic state flourished from the ninth to the thirteenth centuries on the territory of contemporary Ukraine, with Kyiv as its capital. The name Ukraine first appeared in twelfth century chronicles in reference to the Kyivan Rus. In medieval Europe cultural boundary codes were based on a native ground demarcation. Ukraine, with its lexical roots kraj (country) and krayaty (to cut, and hence to demarcate), meant “[our] circumscribed land.” The ethnonym Rus was the main self-identification in Ukraine until the seventeenth century when the term Ukraine reappeared in documents. This ethnonym of Rus people, Rusych (plural, Rusychi ), evolved into Rusyn , a western Ukrainian self-identification interchangeable with Ukrainian into the twentieth century. Ruthenian , a Latinization of Rusyn , was used by the Vatican and the Austrian Empire designating Ukrainians.
A protest with about 100,000 people erupted on Sunday in Kiev in support of joining Europe rather than Russia. Ukraine has a lot of political pressure coming from Russia and Europe. Russia is said to have threatened to turn off the natural gas to the Ukraine if it joined the EU and Europe is promising to supply it gas even though it would be getting that energy from Russia. To say the least, the events in Ukraine are politically very important as we move beyond 2014.
Iran Nuclear Deal or Calm Before the Storm?
I previously warned that the Syrian issue being propelled by Saudi Arabia all over getting their pipeline through Syria to Turkey for Europe, was placing at risk a real game-changer in negotiations with Iran. In the June elections, there was a major shift that moved the political wind in Tehran. President Hassan Rouhani won the election in Iran with a landslide after he campaigned on trying to get rid of the economic sanctions by engaging with the West. His victory was so impressive among the youth that he won even the very cautious backing of Supreme Leader Ayatollah Ali Khamenei to move forward and try to engage with Western countries in an attempt to ease Iran’s isolation over Tehran’s nuclear program.
Rouhani defeated the old hardliners at the polls who still dominate parliament. They also control the powerful Islamic Revolutionary Guard Corps. Their agenda is to return Iran to the familiar posture of defiance. A Syrian strike by the USA would have supported the hardliners and isolated Rouhani who was preparing to travel to New York to attend the UN personally at that very time. President Rouhani, with the backing of the youth, wanted to show the Iranian people were ready to join the world community and end the confrontation.
On Sunday, Iran and six world powers struck a deal to curb the Iranian nuclear program in exchange for initial sanctions relief reported by Reuters. This deal signals the start of a game-changing era in the Middle East. This is all a generational shift in attitude. Can this still just be the calm before the storm if the hardliners find a way to restore the confrontation after 2014?