RSS

Detroit Files for Bankruptcy

20 Jul

Today, Detroit.  Tomorrow, the U.S.?  (courtesy Google Images)

Today, Detroit. Tomorrow, the U.S.? (courtesy Google Images)

Detroit has been mismanaged and allowed its industrial based to wither over the past 2 or 3 decades.  As a result, we could see Detroit’s financial collapse coming for many years.  Although insolvency was resisted for several years, the inevitable arrived on Thursday when the City of Detroit filed for bankruptcy.

The amount of money Detroit actually owes is unclear but is believed to be between $18 and $20 billion.

The population of Detroit is now about 700,000.

If we divide the Detroit’s debt ($20 billion) by Detroit’s population (700,000) the result is a “fair share” of roughly $25,000 in city debt for every man, woman and child in Detroit.

This suggests that when a government’s debt reaches a “fair share” level of $25,000 per person, that government may be in trouble.

•  Like Detroit, the United States has been mismanaged and allowed its industrial based to wither over the past 2 or 3 decades.  As a result, we’ve been able to see a US financial collapse coming for many years.  That national bankruptcy has been successfully resisted for several years, so the inevitable has not yet arrived.

Still, it’s interesting to compare the US national debt to Detroit’s city debt.

According to the Obama administration, the US national debt is at least $17 trillion.  The population of the US is 310 million.  If we divide the national debt by the population, you’ll see that every American’s “fair share” of the national debt is about $55,000—about double the “fair share” of Detroit’s debt owed by each citizen of Detroit.

If Detroit’s debt of $25,000 per citizen was enough to put Detroit into bankruptcy, would the national debt of $55,000/person be enough to put the US into bankruptcy?

Probably not.  I recognize that the economic realities of the US are much stronger than those of Detroit.  Therefore, a national debt that was proportionally double the Detroit debt should not be enough to precipitate a national bankruptcy.

•  However, there’s great doubt as to whether the true size of the national debt is “only” $17 trillion.

For example, John Williams (shadowstats.com) calculates the real national debt is not $17 trillion but is actually about $85 trillion.  If we divide Williams’ calculation by the 310 million population, each American’s “fair share” of the national debt is $275,000—about eleven times greater than each Detroit citizen’s “fair share” of the city debt.

Admittedly, a national debt that’s proportionally twice as great as Detroit’s shouldn’t be enough to precipitate a national bankruptcy.  But, could a national debt that was proportionally eleven times greater than Detroit’s cause national bankruptcy?  I think the answer could be Yes.

•  The Congressional Budget Office has calculated that, including unfunded liabilities, the national debt is about $202 trillion.  Divide that number by our 310 million population, and each American’s “fair share” of the national debt is $650,000.  That’s about twenty-six times the size of each Detroit citizen’s “fair share” of Detroit’s debt.

Given that comparison, can a national bankruptcy be avoided?

I don’t see how.

Yes, the economic condition of the US is fundamentally stronger than that of Detroit.  But is it twenty-six times stronger?

•  More, if the US is so strong that comparing its debt to Detroit’s debt is unreasonable, why doesn’t the “strong” national government simply give Detroit a “bail out”?  In just the last five years, under the guise of Quantitative Easing (QE) 1, 2 and 3, the US has given hundreds of billions of dollars to banks and financial institutions that were deemed “too big to fail”.

Isn’t Detroit–with a population of 700,000–also “too big to fail”?

Apparently not.

QE is for bankers, silly rabbit, not for cities—and certainly not for people.

Even now, our government is using QE to inject $85 billion per month into the economy.  That’s $20 billion per week.

Detroit’s total debt is $20 billion.  Why not kick just one week’s QE to Detroit and let that city escape bankruptcy?

Is Detroit already so ruined—or so black—that the national government sees no point to saving it?  Has the national government decided to ship American industries and jobs overseas and destroy those that remain?

Or is the national government already so nearly bankrupt that it can’t afford to take on another $20 billion in debt?

Inquiring minds . . . .

In any case, the point remains that if Detroit’s per capita debt of $25,000 is enough to put it into bankruptcy, what is the likely consequence of a national debt that averages out to somewhere between $55,000 and $650,00 per person?

Is there any reason to suppose that a national bankruptcy can be avoided?

•  Punchline:

The Washington Times reported in “Judge orders Gov. Snyder to withdraw Detroit’s bankruptcy petition” that a county judge has ordered Michigan Governor Rick Snyder to withdraw Detroit’s bankruptcy petition, saying the state is “illegally trampling the rights of pensioners.”

The judge says plaintiffs in the case (pensioners) have been “blindsided” by Detroit’s bankruptcy petition.

“Blindsided”?

“Blindsided”??!!

Nobody’s been “blindsided” except maybe those millions who’ve spent their lives watching Dancing With the Stars, drinking beer or doin’ crack.  Detroit’s bankruptcy has been clearly seen and anticipated for at least a decade by anyone who bothered to look at the facts.

Similarly, when the United States government finally declares an express bankruptcy and openly defaults on its debts—or at least admits an implicit bankruptcy through hyperinflation—millions of Americans will claim to have been “blindsided”.

But the truth will be that the US bankruptcy has been coming since we adopted a pure fiat currency and has been apparent and inevitable to anyone who had eyes to see and ears to hear.  We may be somewhat surprised by the coming national bankruptcy’s timing, but no one but morons, children and addicts will be able to legitimately claim to have been “blindsided”.

I know what’s coming.  You know what’s coming.  If we don’t prepare accordingly, we’ll have no one to blame but ourselves.

 

Tags: , , , , ,

12 responses to “Detroit Files for Bankruptcy

  1. Tom

    July 20, 2013 at 11:21 AM

    But hasn’t the United States been in bankruptcy since 1933

     
    • Adask

      July 20, 2013 at 12:19 PM

      Perhaps. I’d say we’ve definitely been in bankruptcy since we abandoned the domestic silver standard circa A.D. 1968 and went off the international gold standard in A.D. 1971. It’s one thing to be bankrupt; it’s another thing to admit being bankrupt. So long as you are bankrupt, but you don’t admit it, you must continue to try to pay your debts. By trying to maintain the illusion of solvency, you actually remain in debt bondage. However, once you admit that you’re bankrupt, your credit rating might be trashed and you might lose some or all of your assets as well as the illusion that you’re solvent–but you may also nullify all of your debts and escape debt bondage. By being bankrupt, but not admitting that bankruptcy, our government has remained in debt bondage and subjected the American people to the same debt bondage.

      We might all be better off if we simply admitted we’re broke, defaulted on all debt, and started all over from square one. If we admitted bankruptcy, it might require a painful decade of hard work and sacrifice to work our way back into the status of a productive, prosperous nation. But so long as we pretend we are not bankrupt, we will never escape the condition of debt bondage and debt servitude.

       
  2. cynthia

    July 20, 2013 at 11:42 AM

    i am a bit confused. per 12 USC 411, FRN\USD is for internal bank use only. based on ‘types’ or ‘classes’ of ‘money’ a simple promissory not or money order handled and set-off and dis-charged with U.S. Treasury ‘is’ or ‘can be’ ‘pay-ment’ in full. This being the case, why not have each respective mayor, governor send said promissory note to U.S. Treasury to assist in set-off and dis-charge of said “national’ or respective ‘city’ corporation ‘debt’??

     
    • Adask

      July 20, 2013 at 12:11 PM

      You are trying to inject reason into a financial system that is, at bottom, fundamentally irrational. I.e., how can a debt be an asset? Reason and the irrational are anathema to each other. So long as the Powers That Be insist on an irrational monetary system, your attempts at reason will be rejected as naive.

       
      • cynthia

        July 20, 2013 at 6:56 PM

        that does not surprise me in the least, and totally expected.. was just interjecting to YOU.. and curious if you have knowledge of such things, i.e. 12 USC 411, and ‘classes’ or ‘types’ of ‘money’ i.e. M1, M2, M3, (not to be confused with “Mission Impossible” though certainly applicable, inside joke – bad pun).

         
  3. cynthia

    July 20, 2013 at 11:43 AM

    er – promissory *note*

     
  4. Jetlag

    July 20, 2013 at 12:54 PM

    Your article raises important questions. As you have said before, what cannot be repaid will not be repaid. This truism narrows the range of possibilities we have to consider.

    From the Wikipedia article on sovereign default:

    “If potential lenders or bond purchasers begin to suspect that a government may fail to pay back its debt, they may demand a high interest rate in compensation for the risk of default. A dramatic rise in the interest rate faced by a government due to fear that it will fail to honor its debt is sometimes called a sovereign debt crisis.”

    Interest rates have been climbing lately. This could be a reason.

    Again from the article:

    “Since a sovereign government, by definition, controls its own affairs, it cannot be obliged to pay back its debt. Nonetheless, governments may face severe pressure from lending countries. In the most extreme cases, a creditor nation may declare war on a debtor nation for failing to pay back debt, in order to enforce creditor’s rights.”

    More:

    “Therefore governments rarely default on the entire value of their debt. Instead, they often enter into negotiations with their bondholders to agree on a delay or partial reduction of their debt payments, which is often called a debt restructuring or ‘haircut’.”

    The article goes into some history which could serve as a guide to future developments. It’s worth a read by those interested in this topic.

    http://en.wikipedia.org/wiki/Sovereign_default

    See also:

    Previous debt defaults by the United States government: 1779 (devaluation of Continental Dollar), 1790, 1798 (see The Quasi-war), 1862, 1933 (see Executive Order 6102), 1971 (Nixon Shock).

    http://en.wikipedia.org/wiki/List_of_sovereign_defaults

     
  5. Adrian

    July 20, 2013 at 12:55 PM

    US debt is not America’s debt,it belongs to the corporate structure.STOP confusing the two entities.
    The consept of debt has originated with the US Constitution. America and American People are not
    part of that compact. Detroit is just another corporation.All those phony numbers you are talking about don’t mean anything to us.American People are not responsible for any debt.
    STOP calling them Government,they are nobody’s Government.
    You have been brainwashed for too long.Stick with our American reality.

     
    • cynthia

      July 20, 2013 at 6:57 PM

      Here here! (hear, hear) totally concur!

       
  6. Yartap

    July 20, 2013 at 2:04 PM

    Look closely everyone. Who does the government protect? Answer: the Government Worker! Not the people who they are suppose to serve.

    I befriended a man who moved to the south and was a retired bus driver from the City of Detroit. He told me that he retired with a pension of $140,000 per year. Just 90% of his actual wage. He said the city had college professors with doctorates applying for bus driver jobs. He is the one they are trying to protect.

    It’s the government political tit pay off! Buy the votes for their evil deeds.

     
  7. palani

    July 21, 2013 at 6:31 PM

    The federal government has always defined bankruptcy. Seriously. The state government have been told to keep their hands off contracts and tortious interference with them. Bankruptcy is now and always has been a benefit handed down and administrated by the federal government.

    I suspect since they get to define what bankruptcy is and who gets to declare it that they have written their own status out of the definition. I think this goes back to the Articles of Confederation where they have described themselves as ‘perpetual’. There is no part of ‘perpetual’ that belongs in the benefit of bankruptcy. Instead it is a termination and you (or in this case Detroit) gets to be resurrected (albeit in something greater than 72 hours) into a newborn corporation with some small change in the name to make you believe that it is still Detroit.

     
  8. PETER

    July 23, 2013 at 2:51 PM

    The announcement of the Detroit bankruptcy is probably good news for the bankrupt economy.
    It allows the powers that be to continue to have an excuse to continue to expand (debt) money supply in order that debts can continued to be paid. Without that extra money supply it would be impossible to keep Ben’s flying machine in the air.

    It is just a matter of time before the players in the metals market start to panic and frantically cover their shorts, it may be underway as of this text.

    Super cycles, there have been many since A.D. 1968 and A.D. 1971. If you catch it just right you may be set . Speaking of gold and silver ,these it is their turn ,sit back and enjoy the super cycle.

    In the land of the bankrupt and blind what does it take to be on top?

    Convert your green trash into something real.

     

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s