Municipal unions claim another victim. San Bernardino will be hard pressed to avoid bankruptcy.
Facing a mounting budget deficit and dwindling tax revenue, the San Bernardino City Council on Tuesday is scheduled to consider drastic budget cuts, possibly filing for bankruptcy, to save the city from financial ruin.
Update: San Bernardino decided to file.
Stockton, with a population of 300,000, set a record for largest population city to file for bankruptcy. San Bernardino, with about 200k population, won't break that record. However, around 2015 or 2016, when San Jose's pension obligations force that city into bankruptcy its nearly 1 million population will enable it to set a new record for US municipal bankruptcies. Good times.
The Stockton, Mammoth Lakes, and San Bernardino bankruptcies are signs of times to come. Recent pension reporting rules changes by the Governmental Accounting Standards Board (GASB) are going to force state and local governments to more accurately report their unfunded pension liabilities. However, even the GASB changes fall short of what's needed to get an accurate recognition of the size of government pension liabilities.
A July 2 report by ratings agency Moody's Investors Service calculated that if it used a 5.5 percent discount rate, a rate more conservative than the method GASB proposed in its final rules, but closer to the way corporations value their pensions, it "would nearly triple fiscal 2010 reported actuarial accrued liability" for the 50 states and rated local governments to $2.2 trillion from $766 billion.
If economic growth remains low these liabilities will soar even higher. If Peak Oil causes an extended period of economic contraction then unfunded pension liabilities will soar while tax revenues shrink.
Anyway, Secretary O’Neill popped up the other day on Bloomberg Television to compare debt-ceiling holdouts to jihadists. “The people who are threatening not to pass the debt ceiling,” he said, “are our version of al-Qaeda terrorists. Really.”
“They’re really putting our whole society at risk by threatening to round up 50 percent of the members of the Congress, who are loony, who would put our credit at risk.”
Mark makes some mostly obvious observations like pointing that running a huge (and unsustainable) budget deficit (now about 10% of GDP) already puts American national credit at risk. He also points out at the whole purpose of a credit limit in the first place is to increase credibility with creditors. Well, that credibility only exists as long as there's a real ultimate ceiling for how big the debt can be allowed to grow. So trying to act like there's a real debt ceiling adds up to terrorism how exactly?
I expect Congress will eventually do debt ceiling increase that their spendthrift ways (fully supported by most of the electorate) made necessary. That some Congresscritters at least use the occasion of a vote on the debt ceiling to draw attention to our national folly strikes me as helpful though not sufficient and certainly not terrorism.
This reminds me of something else I just read about monetary terrorism. When Bernard von NotHaus was recently convicted in a US District Court in Statesville North Caroline for making a Liberty Dollar from silver as an inflation-safe alternative to the real dollars (and did anyone buying the Liberty Dollar think they were buying real US currency?) US Attorney Anne Tompkins accused him of domestic terrorism for undermining the US dollar.
“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,” U.S. Attorney Anne Tompkins said. “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.”
When counterfeiters just print money they are expanding the money supply the expense of everyone else. The Federal Reserve, in its Quantitative Easing programs, has basically generated cash out of thin air. First the Fed bought up dubious credit from banks. Now it has graduated to buying up US Treasury debt, again with money the Fed generates out of thin air. Like counterfeiters. Really, The Fed is doing something qualitatively different how exactly? The monopolist says "but on me it looks good".