Detroit Is A Dangerous Bellwether

“A storm is coming, Mr. Wayne”

In case you haven’t heard, the City of Detroit filed for bankruptcy. It is in the red for ~$18B. This worries me greatly. By law, America’s 50 states are not allowed to go bankrupt. As a result, financial troubles are pushed down to the municipal level. What’s scary is that Detroit is just the first city to fall like this, and there will be more. It’s a slippery slope, but my belief is that Washington D.C. has no choice but to bail out Detroit. That will mean other cities have a perverse incentive to file for bankruptcy, but the alternative is that legions of city workers will be out of a job and have their retirement pensions evaporate. This will lead to massive civil unrest, and Detroit is not just some American city. America is in a very tricky situation. It’s only choices are to bailout and kick the can down the road, or to administer painful medicine that will likely result in an extremely unsavory environment.