The Implications of Telling States to Go Bankrupt Are Dangerous and Long-Term
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The Implications of Telling States to Go Bankrupt Are Dangerous and Long-Term

It is going to take a generation for the US and the world to recover from the damage we have incurred, very much in part from our own actions.

We are all now fully aware of the impact and implications of damaging statements made by our leaders.   As I write, the country’s leading authorities are explaining to people not to ingest Clorox or bleach as a prophylactic protection from COVID-19.

A comment that will not be as easy to recover from is the one made by Mitch McConnell two days ago where he recommended that states like New York and New Jersey be allowed to go through bankruptcy.   Many Republican leaders, including Nikki Haley, piled on, while other voices on the Republican side like Peter King tried to push back.

As a New Yorker, I can echo the statements of Governor Cuomo about how unfair it is for states like Kentucky and South Carolina that have sucked at the tit of the federal government for centuries to even suggest that coastal states be forced into bankruptcy and the loss of essential services.   

But, still more serious is the long-term implications to debt markets that will be felt long after Mitch McConnell is gone.   Just the mere fact that we are engaged in a discussion about whether states and municipalities should be allowed to go bankrupt will make it far more difficult for every state in the Union to raise new monies or refinance going forward.   Every state in the country will pay more for insurance and/or need to offer municipal bonds with higher yields to reflect a higher risk of default.

And, no matter what resentment the people in the middle of the country have towards those of us on the coasts, this will hurt all of us.   Even if ultimately no state is allowed to go bankrupt, the recklessness of this statement will hurt our children, our grandchildren, our great grandchildren, and their children.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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