by Simon Black, Sovereign Man:
At precisely 4pm on Friday October 17, 1975, New York City’s government would have a $453 million in debt to repay.
But literally the night before, the city’s government had only $34 million on hand.
It was the makings of an epic financial crisis: the wealthiest city in the world was about to declare bankruptcy.
New York City’s mayor Abe Beame had called US President Gerald Ford numerous times begging for federal assistance, but Ford refused. The nation had bigger problems to deal with.
New York was desperate.
But with only hours to spare, they managed to convince the powerful Teachers’ Union to use its gigantic pension fund to buy up the bonds and save the day.
The plan worked, and New York City was very narrowly able to escape bankruptcy.
But that wouldn’t happen today; a number of state and local governments are teetering on the edge of default, and public pension funds are in no position to bail them out.
Pensions are actually a huge part of the problem.
New York’s Teachers’ Retirement System– the same union that bailed out the city in 1975, is today technically insolvent.
According to the pension fund’s most recent financial report, the fund is about 40% short of being able to pay out its obligations.
And the numbers are similar across the board for New York’s Fire and Police pension funds as well.
And New York is definitely not the only problem spot.
Public pensions in the State of Illinois are 60% underfunded, on average. And more than 65% in New Jersey.
In fact, only TWO states in the Land of the Free have fully-funded public pensions as of 2019: Wisconsin and South Dakota.
So, most pension funds are in serious trouble and in no position to bail anyone out.
State government are even worse off: Illinois’ debt is rated one level above junk, and the state legislature asked the federal government for a $40 billion bailout.
California, New Jersey, and New York are also lining up for a federal bailout.
And amazingly enough, Congress is actually considering a $1 trillion bailout for state governments.
Plus, last week, the Federal Reserve announced that it will step in and buy $500 billion worth of bonds from states, counties, and municipalities.
So that’s another $1.5 trillion for state and local governments, on top of the trillions of dollars worth of bailouts they’ve already made.
Remember– all of this money is just being conjured out of thin air. These politicians and central bankers believe they can print all the bailout money they need without ever having to make a difficult decision.
But this solution is a ridiculous fantasy: you cannot borrow or print your way to prosperity.
If that were the case, Zimbabwe would have become the wealthiest country in the world long ago.
It’s perfectly fine to remain optimistic and hope that, maybe just maybe, the virus will just magically disappear, everything will go back to normal, and there will never be any consequences from all of this money printing.
And while I’m at it, I can also hope that the Dallas Cowboys decide to make me their starting quarterback next season.