Not many people are paying attention to this issue. Some states are so cash-strapped, they may not be able to make good on their bonds. When a big state, like Michigan, goes tits up, THAT is when the shit will hit the fan.
Someday soon, the states in the direst condition will have to choose between dissolution and screwing the bondholders. Guess which they’ll choose.
I’m sure there’s a third alternative there somewhere…[/quote]
The problem is that pensions of teachers, state police, and other state employees are defined benefit pensions. The liabilities that the states signed on to are absolutely massive.
Several years ago, after Arnold became ‘govenator’, he said: “If I fired every employee of the state, we could still not pay off the debt of California.”
So, yes, they could slash pensions, but it probably still would not cure the massive problems.