John Mauldin Warns “Don’t Be So Sure That States Can’t Go Bankrupt”

Sunday, August 7, 2016
By Paul Martin

by John Mauldin via MauldinEconomics.com,
ZeroHedge.com
Aug 7, 2016

Our judicial system has a time-tested option for those who can’t pay their debts: bankruptcy. Individuals and businesses use it all the time.

The debtor submits itself to a court, which tries to reach the fairest possible settlement with creditors. It’s messy, but it usually works for the best.

Federal bankruptcy code permits cities, school districts, and other local governments to file bankruptcy.

Some have done so, and I expect many others will in the coming years. Cities like Detroit and others in California have used bankruptcy to renegotiate their pension plans and other debts.

States are a different matter.

Current law doesn’t let states go bankrupt… yet

If the law should change and a state actually tried to file for bankruptcy, creditors would immediately file constitutional objections under the contracts clause and the 10th Amendment.

Some legal scholars think those barriers can be overcome. The argument would go to the Supreme Court and probably take years to be resolved.

The Rest…HERE

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