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We Could All End Up Like Detroit If Feds Bail Out City

Detroit declares bankruptcy
(Photo by J.D. Pooley/Getty Images)

Detroit has become the largest city in U.S. history to declare bankruptcy.   While a lower-circuit judge ruled it was invalid, it’s just a few pieces of paper and a gavel away from happening as that judge had no authority or judicial power to stop it.

While ANY city going under is disturbing, Rick Manning writing for Americans for Limited Government’s NetRightDaily.com said Wednesday a financially terrifying idea is being proposed: Have the feds “bail out” the city:

“But fear not America, Flint, Michigan Democrat and freshman Representative Dan Kildee thinks he has a better idea than bankruptcy — let Uncle Ben Bernanke, the bail bondsman to out of control governments take on Detroit’s debt.”

Despite the so-called success of the GM and Chrysler bailout by the feds, the city of Detroit remains in a steady decline. According to Manning, city officials agreed to public worker contracts and pensions that were unsustainable, raised taxes, and failed to keep up with infrastructure demands.

Did you know the Detroit Museum of Art had hundreds of millions of dollars in displays and treasures that could have been sold to raise much-needed revenue? That the city continued to pay hefty salaries and pensions to workers while money needed to fix broken street lights drained away? City officials watched dozens of businesses and hundreds of thousands of residents move away over the last five years without taking any action.

It now takes an average of at least 58 minutes in Detroit for a police response, even if the 911 call is about a shooting! Over half of the once-thriving city’s population has moved away in the last two decades.

But the real danger here would be the precedent if the feds DO step in and assume the debt, says Manning:

But the real danger in Kildee’s request is the precedent it would set if the Federal Reserve actually turned its bond buying penchant toward municipal and state debt. According to the Cato Institute, state and local governments across the United States have $3 trillion in unfunded pension liabilities alone.”
Already faced with staggering deficits caused by the current Administration’s spending and stimulus plans, if the federal government set a precedent by taking on municipal debt it would get even worse. Plus, Manning argues, local and regional governments would undoubtedly begin to think they could spend money on whatever they want because the feds would bail them out. Manning finished his article with some very scary, and true words:

In the past election campaign, Obama proudly talked about how he “wouldn’t let Detroit go bankrupt” in taking credit for the auto manufacturers bailout that were actually done by George W. Bush, in the month before Obama became president.

Now, less than a year after the 2012 campaign blather, a city that has led the way in spending what it doesn’t have, promising what it cannot provide, and hoping that somehow the consequences of their policies could be avoided, is paying the piper.

What is scary is that hundreds of city and state governments are somewhere on the same path, and with more than $17 trillion in debt, our federal government is not far behind.

A scary realization that someday soon, we all may be Detroit.”

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