Pension Funds Can Be Reduced in Bankruptcy

by Martin Armstrong
Armstrong Economics

One of the important developments is the Stockton, California bankruptcy. The jurisdiction for bankruptcy is federal court, not state. This is rather significant and the law is really clear, there are no exceptions among creditors under bankruptcy. A federal judge earlier this week gave the green light to Stockton, Calif. to restructure under bankruptcy protection and that applied to the state pension funds.
Perhaps nobody wants to really address this issue openly, but it is the pension funds that are destroying state and local governments who cannot simply print money as can the Feds. As one state employee retires, they are replaced and that means the cost of government goes exponential. We are looking at the cost of state and local governments doubling over the next 10 years and that is simply not sustainable. This is HIGHLY deflationary because they increase taxes and have no means to expand the monetary system. Thus, all the arguments of those selling the hyperinflation scenarios are omitting the impact at the state and local governments that will be deflationary.
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