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USA. How Your Kids Will Pay for Broke Cities Like Detroit

July 6, 2013

The blue cities (and states) are bankrupt.

For instance, Detroit, the city, which had the highest per capita income in the United States in 1960, is now broke. The city now boasts thousands of abandoned homes, dangerous neighborhoods, no police force and no budget. The people left behind are of minimal help to Detroit’s situation as many if not most are reliant upon social services aka other people’s money.

Then there’s the people Detroit owes money to. So how does Detroit plan to pay?

Detroit’s Plan: Any creditor with an unsecured claim receives 10 cents on the dollar. If you invested in a Detroit bond, not backed by anything in particular, except the “full faith and credit” of Detroit. Your bond is now worth about 10 cents on the dollar. If your bond is not backed by a particular asset or revenue stream, and is not insured, you just lost 90% of your investment.

Detroit is just the latest casualty of politicians being able (without courts stepping up to curb the overreaching governments) pledging other people’s money for promises they cannot keep. The only way out for Detroit and many other Cities and States is bankruptcy.

Prediction, the day is coming when Congress will have no choice than to grant states the power to go bankrupt. There is no otherway out. The question is that when States and Cities reduce their obligations to cents on the dollar, are ordinary citizens that populate those communities going to be granted the same option or will they just lose 90% of their investment?

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