We have been preparing our readers over the past year to expect quite a few cities across the country to start officially declaring bankruptcy.  Just like their parent nation, many are broke, and are forced to steal from one pocket of money just to pay obligations to the next pocket.  It is a scheme that can only last so long when your obligations are larger than your tax income, and the first round of cities are starting to feel the pinch.

Once such city that was forced to take the steps to bankruptcy was Stockton, California.  With a population of 300,000 it will make it the largest US city to declare bankruptcy.  Of course there is a lot of finger pointing when it comes to the culprit that caused it.  Some say it was the city leaders, some blame the housing crash, and many believe it was the huge pension expense obligations that eventually put them under.  As it turns out, we must agree with the pension thesis is we had to pick a malefactor.   According to recent articles, Stockton negotiated overgenerous terms to their unions and government workers.  To the point that almost 100% of their general fund was going towards pension funding, post employment benefits, etc.

Will these city, state, and muni pensions continue their path of destruction?  For the cities and states that were naive enough to make these extravagant pension promises when times were good (and in some cases at the peak of economic times) then probably so.  We just hope it doesn’t create a massive domino affect.  There are only so many entities that the Federal Reserve can bail out before every starts to realize that our dollars are worthless…

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