When does the USA go bankrupt?
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Well, it’s official now, folks. Stockton, California — or I should more correctly say “Stoke’tun.” That’s how they say it, if you live there. I lived in Sacramento. As you know, it’s my adopted hometown. I’m getting a PBS station. I forget the call letters, but it covers the Sacramento-Stockton market — and, you know, every half hour they’ve gotta officially identify the station. And they’ve got the typical PBS voice. They give the call letters, K-da-da-da, whatever it is, Sacramento, “Stock’ton.” Okay. Regardless, Stockton (which is just south of Sacramento, and just 80 miles east of San Francisco) has gone bankrupt.

It’s the first city, first American city to go bankrupt probably since the Great Depression. But we’re not in a depression. We’re not even in a recession. We are said to be practically in a booming economy, at least according to the new normal of this regime. But the story has now moved on from Stockton going bankrupt. The question now is: Who is going to get paid? Who’s going to be first in line in the bankruptcy, Stockton’s creditors or the city workers — the union city workers or the bondholders? Stockton, by the way, is city of 300,000 people. Last June, they filed Chapter 9 bankruptcy protection.

The bondholders, people that have muni bonds for Stockton, took them to court. The bondholders argued first that the city hadn’t done everything possible to pay their debts like sell real estate assets. They then argued that the bondholders were being unfairly hit with most of the pain of the bankruptcy. Although bonds account for only 7% of the city’s total budget, the City of Stockton is demanding that the bondholders absorb 44% of the concessions. In other words, the bondholders are being told to forget 44% of what they’re owed. Government unions, on the other hand, were not asked for any concessions in their pension plans. And make no mistake: This is a bankruptcy due to the unfunded future liability of pensions that they can’t possibly pay.

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