Detroit: Inevitable Fall
Detroit's announced bankruptcy proceedings have put the economic-recovery-that-isn't mantra from Washington in jeopardy. Oh, the periodic pronouncements have always been full of optimistic blather but have been lacking in concrete facts. Detroit is the biggest obstacle yet.
Detroit for a century was the very embodiment of the American Dream. The city fed the mass hunger for swift, luxurious transportation. It grew at a faster pace in population and in wealth than any other American city after WWII.
But the pension plan problem that the Rant has used to demonstrate the overpowering, implacable force working against any recovery is finally being felt.
Current expenses can be tossed out the window. The problem in American government today--at all levels--is the unrealistic pensions that were set up decades ago. The worst nightmare for America is the fact the auto industry established its pension plan on a basis very similar to the Social Security system adopted by the U.S. government.
The auto plans began failing years ago and, almost directly, led to the bankruptcy filings of Chrysler and General Motors. All these are schemes built on faulty figuring and liberal visions of utopia.
The secret that couldn't be was a continuous growth in population rates and the economy together. There is only so much wealth available. Every extra printed dollar means inflation has to be accounted for by all parties.
The powers-that-be either gave or promised extra benefits to retirees but when the economic engine coughed, the fragile retiree system felt it first.
You listen to Detroit supporters and the new drumbeat goes "There's plenty of good business opportunity in Detroit." Not if the infrastructure cannot be maintained. The whole American economy system has ignored the fundamentals for so long that the "great business opportunity" takers cannot be certain there will be customers capable of buying more than bare necessities in another year.
Mayor Dave Bing wants the bankruptcy to be over within 15 months--mostly because a protracted fight means millions more in legal costs each month. A possible solution for the city would be to avoid the legal fight and just not make payments at all. How much blood can you squeeze from a turnip?
As horrid as Detroit's situation is, everybody paying taxes is in that much worse a situation because the federal government continues to do the very things that got Detroit in trouble, on a national scale and not a local one.
The financial system is teetering once again to do the collapse threatened by 2007's debacle. One of the cornerstones of the derivatives trade--municipal bonds--is back in the spotlight. If Detroit forces its creditors to take an 80% hit, that will affect everyone who relies on some government services to clean roads or provide adequate water and sewer systems because the interest rate on those instruments will surely rise.
That increased debt service will mean either taxes must rise or there be a cutback in projected services because of a cash flow deficit.
The problem is the average family can't kick the can down the road any longer. It needs some answers but, if politicians are honest, the answers won't be what are wanted. This isn't a dream, it is reality; and reality is usually harsh.
"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson
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