Stockton will soon seek protection from creditors by filing Chapter 9 bankruptcy, and with over 700 million in debt across various agencies they have a long way to go. The council will vote on tuesday to cut public employee pensions and benefits as well as “suspend” a 10.2 million dollar debt payment. Their credit has been cut to Junk status by Moody’s rating agency, and they will be over time phasing out completely retiree medical benefits as they have over 417 million in liabilities related to just that one source.
I have posted numerous times on the MUNICIPAL DEBT TIME BOMB that is already rearing its ugly head across numerous cities across the U.S., with Providence, R.I., coming to press around the same time that Stockton’s death spiral began as well.
Over the last decades with the mindset of Roosevelts, lovely ‘Lets take care of everyone’ Cradle to grave socialism and Johnsons War on Poverty Welfare state, municipalities began to make lifelong healthcare and massive pensions not a rare benefit but a common and expected thing. Businesses followed suit soon after, but the main issue was most companies provided a form of health insurance, that being major medical. So if you got into a car crash and broke your collar bone and had to spend 1 month in recovery, you would be covered, and not be destitute from medical bills, which in my opinion is a great benefit to offer. Unfortunately seeing the flawed example of municipalities, people in the private sector wanted the “nickel and dime” healthcare where every bruise, scrape, strange cough and tickle was covered with little to no recourse to the employee.
Now cities and states across the nation, even ones that show no “signs” of problems will soon follow suit, massive health care liabilities and pensions are the modern day debt chickens coming home to roost, and cities are continuing to borrow, borrow, borrow to cover these costs and fund day to day operations and payroll for current employees. What happens is this, as medium sized cities like stockton and providence start to go down the craphole, investors will start taking hard looks at the financial health of other local and state governments. They will begin to lost confidence as a city here and city there declare bankruptcy and cant pay down the debts on their bonds. Then people stop buying the bond, and bonds are the lifeblood of modern municipal governments, without them roads arent paved, snow isnt plowed, lights dont come on, police arent payed, etc. Once this happens, the largest economic collapse in world history will begin, and there is no way out of it.