42 Bankruptcies Later; Pace of Municipality Bankruptcies Increases

By Tuesday, November 27, 2012

debt crisisI’m worried about U.S. debt (which this morning surpassed $16.3 trillion) and I’m concerned it’s going to increase even further. We all know that, since the financial crisis hit in 2008, U.S. debt has skyrocketed. Now with cities and states across the U.S. struggling with their budget deficit and liabilities, I’m concerned the U.S. government will become the ultimate banker—or, I shall say, bankruptcy trustee—adding more to the U.S. debt in the process.

Cities and states are unable to cope with the budget deficits they have created and are struggling to the point where some have filed for bankruptcy and some are becoming doubtful of their fiscal state. Since 1981, 42 U.S. municipalities have filed for bankruptcy; 10 of them in last four years. (Source: Global Research, July 19, 2012). The cities couldn’t handle their respective budget deficits and were not able to pay their obligations.

On the state front, the Illinois state pension is running out of funds to cover its obligation and the state might need to draw funds from education, infrastructure, and local aid. Illinois is scrambling to deal with $83.0 billion in pension deficits and $8.0 billion in unpaid expenses. (Source: Bloomberg, October 29, 2012.)

With so many cities and states in trouble due to their vast budget deficits, the federal government may need to help them by stepping in and increasing its own budget deficit. Ask yourself this question: the federal government didn’t let too-big-to-fail companies like AIG, Citigroup, and General Motors fail, so won’t it bail out its own cities and states?

Sure, if the fiscal cliff is allowed to happen, personal income taxes will go up, government spending will go down…and this will help the budget deficit. But bailouts of cities and states facing major financial difficulties could easily sway the budget deficit in the opposite direction.

I won’t be surprised if U.S. debt continues to grow at the same rate it has been since the financial crisis started four years ago.

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Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder and editor-in-chief of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful... Read Full Bio »