Now we know that a whopping 32 states are officially bankrupt, and that apparently, the US government has been engaged in shadow bailouts of these states, i.e., “giving them money under the table.”
In addition, all that money that states borrowed from the Federal government in order to continue to pay unemployment benefits? Now they won’t have to pay any interest on those loans for another couple of years, and tax increases won’t hit state employers yet. The proposal is set to be included in the 2012 budget proposal that Obama will present next week.
Republicans won’t like it, even though they should (since it avoids short-term taxes) – and in any case, the NY Times reports that “Republican lawmakers could find themselves under pressure from Republican governors, whose states owe the federal government billions of dollars.”
State Debt Shadow Bailouts: Trojan Horse?
Does anyone really think that Michigan is going to be able to pay any money back, even two years down the road? Where will the new money come from? Michigan’s situation is getting worse, not better. Is it just waiting for quantitative easing part three?
Seriously. About 67 municipalities in Michigan are already bankrupt. Detroit has cut back garbage-removal services in 20% of the city. Then look at Camden, NJ, which had to lay off its police force (in what was already the most crime-ridden city in the U.S.). Don’t even get started on California. A monkey could throw a dart at the state and hit a suburb full of foreclosures. California’s so broke it has been releasing prisoners it can no longer afford to keep locked up. Then there’s Ohio, another state laying off police workers. Then there’s Chicago, which is planning on opening a local casino to raise funds for the city.
Will we see food riots in the U.S.? If we do, it seems doubtful it will look the same as it does in Egypt or elsewhere in Africa. But the prospect is still on the table, as long as there’s yet another financial crisis waiting in the wings.
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