You can set a rate, but you can't force people to offer to lend at that rate. You need a Federal guvmint loan facility.
On Thu, Aug 12, 2010 at 12:24 PM, c b <[email protected]> wrote: > So, how about a movement for federalizing the setting of bond rates > for states and municipalities ? > > Charles > > ^^^^^^^^ > > > From: Max Sawicky > > States as sovereign entities cannot go bankrupt and cannot be sued for > default; that is my understanding, possibly wrong. But if they want > to borrow in the future they dare not default. > > ^^^^^^^ > CB: This seems correct to me. I don't think there is a provision in > the bankruptcy statute for states. > > It's interesting to breakdown "bankruptcy" here. A bankrupt has his , > her or its debts substantially forgiven ultimately. Creditors don't > get all their debt. So, if the states could go bankrupt they would > legally default on some debts. > > The threat of future high interest rates to borrow as the only whip > and punishment on the states for defaulting might be vulnerable to > attack from the left some time in the near future if enough states > continue in the red. I mean Wall Street's power to charge higher > interest rates on defaulting states might be vulnerable to attack by > the People, so to speak, through the states and the Congress, > especially if the states could be influenced to join with unions and > foreclosed homeowners and others who have beefs with Wall Street now. > > Just thinking out loud. > > ^^^^^^^ > > > Qualifying note: there is general obligation debt and revenue bonds > (there is also short-term debt, not a big deal). The latter are tied > to specific projects and revenue streams; default on them is not > uncommon, but there are no legal consequences for the states' general > funds. GO debt by contrast is backed by "the full faith and credit" of > the state government. There has been no default on GO debt since the > 30s (Arkansas). States will gut their budgets before defaulting on GO > debt, since if they did default, their borrowing costs would increase, > perhaps to a prohibitive level. > > ^^^^^^^^ > CB': Same thought: can a movement be built to take some control away > from Wall Street to use future high interest rates to control states > on this. Afterall, Wall Street itself went bankrupt, and it isn' t > being punished with future high interest rates or some equivalent > punishment for moral hazard purposes. Not only that, Wall Street was > bailed out not just forgiven debts as in bankruptcy with money from > the People in the states. Why should states still be held in moral > hazard to Wall Street when Wall Street is not held to moral hazard ? > > ^^^^^^^ > > > High debt tends to be conflated with unbalanced budgets, but they are > distinct. You can be way out of balance with no debt, where borrowing > given BB rules is not feasible. My quick take on California is that > its debt is not the big issue; its imbalance of revenues and outlays > is. Kind of like Greece. > > ^^^^^^ > CB: So they don't have sovereign _debt_ crises. > > ^^^^ > > > Cities like all local govs are creatures of the state; they are at their > mercy. > > ^^^^ > CB: Exactemente. There is also a provision in the Bankruptcy statute > for municipalities. Orange County went legally bankrupt. It was based > on Wall Street interactions, though, I think. Bad investments. > > > > On Wed, Aug 11, 2010 at 2:15 PM, c b <cb31...@xxxxxxxxx> wrote: > > For states that "require" a balanced budget, what's the punishment for > a legislature that doesn't balance its budget ? Removal from office > ? No. Receivership by the federal government ? No. > > There are no consequences for the state government as there are no > "higher powers" over the states on this, no ? > > Cities can be put into receivership by their states, however. > > Charles > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l >
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