Coming: A Wave Of City Bankruptcies

Coming: A Wave Of City Bankruptcies
Photo by Tina Bosse / Unsplash

There was a tsunami of money coming into city coffers as the Trump tax cut combined with $5 trillion of dollars of government largesse flooded into our bank accounts.
Tax revenues skyrocketed to record highs. Governments were floating on air.
But the situation is changing. And going to get worse. Cities are facing a fiscal cliff.
There is no more aid for cities that are essentially bankrupt in New York, Illinois, and California. That is all spent. All Covid aid to cities is due to expire by 2026.
Add to that the recession of 2023 which will reduce tax revenue and boost aid payments which will sharply shift the fiscal balance from having a flood of money to a drought of money.
Add the systematic problem of $2 trillion in unfunded liabilities to public retirement retirement obligations. Oh, and they are always whining that they need more money for infrastructure.
And they are already heavily in debt to the tune of $4 trillion in muni bond debt.
Look for bankruptcies this recession. In the Great Recession, we saw Detroit, several small cities, and Puerto Rico go belly up. It will be worse this time round.
These bankruptcies will add more people to the unemployment roles and cause more fiscal pain.
Will the new Republican House stop bailing out bankrupt cities? Quite possible as they are all run by Democrats and the Republicans will try (but fail) to burnish their fiscal conservative credentials.
The bottom line is that we will see even more cities go bankrupt in this recession than at any time since the Great Depression. We might even see a state or two go belly up. I’m looking at you, Illinois.
How do we make money from this?
First, protect yourself. Don’t buy muni bonds. If you can, think about shorting some. I’m no muni bond expert so can’t help you here.
I’ll try to figure out some other ways to make money. Do you have some ideas? Let me know! It should be a big money maker!