State bankruptcy? Another really ignorant idea from GOP’s McConnell

From getting rid of “Obamacare” (with no plan for a replacement), to torturing

Sen. Mitch McConnell files for seventh term in Kentucky
GOP Mitch McConnell

immigrant children at the border, to cutting taxes on the rich, to firing the people who were hired to deal with pandemics, to getting rid of anti-pollution laws, and on and on, the GOP is a veritable fountain of truly ignorant ideas.

The GOP ignorant-idea fountain still flows, for here is yet another one: Have states go bankrupt rather than giving them federal aid.

Gov. Pritzker rejects state bankruptcy call
McConnell floats solution to get out of pension debt
By Rick Pearson

Democratic Gov. J.B. Pritzker on Wednesday rejected Republican U.S. Senate Majority Leader Mitch McConnell’s call for a pause in federal coronavirus relief aid to the states and support for allowing states like Illinois to file bankruptcy to unload heavy public employee pension debt.

Asked about the comments during a daily coronavirus briefing , Pritzker said McConnell is “certainly important to the process of getting things done in Washington, D.C.,” but noted that “there are an awful lot of senators on both sides of the aisle that disagree with him.”

Yes, McConnell is “important”  to the process of getting things done. But there’s one problem. He doesn’t actually get anything done.

Instead, he sits on hundreds of bills, mostly because they are Democratic bills and/or are bills that would help the non-rich rather than the GOP’s favored group, the very rich.

He is worse than useless. Things happen despite him, not because of him.

“So, I’m hopeful that as a result of work that they’re doing, those (other) senators believe that states and local governments deserve and need additional support,” Pritzer said.

And seeking bankruptcy protection, Pritzker said, was not an option he has considered. The governor’s remarks came after McConnell appeared on the nationally syndicated Hugh Hewitt radio show .

The head of the Senate’s GOP majority reiterated his belief that there should be a pause to doling out additional federal aid to states to cope with a downturn in local revenues due to the pandemic.

“We’re going to push the pause button here because I think this whole business of additional assistance for state and local governments needs to be thoroughly evaluated,” he said.

“This whole business” is called pumping anti-depression dollars into the economy,” a concept either McConnell doesn’t understand, or he knows it would help prevent a depression, which he actually wants.

Why? The GOP is the party of the rich, and the rich benefit comparatively from recessions and depressions, i.e. the Gap between the rich and non-rich grows during hard times.

The wider the Gap, the richer are the rich, for it is the Gap that makes them rich. (Without the Gap, no one would be rich. We all would be the same.)

McConnell went further during a discussion about states with large public pension shortfalls, saying he would be in favor of allowing them to “use the bankruptcy route.”

Individual states do not have the power to file for bankruptcy to get out from under debt obligations, however.

“There are two reasons why state governments currently cannot use the federal bankruptcy system to reorganize their debt. First, the federal bankruptcy code does not allow—and has never allowed—state governments to declare bankruptcy. Since 1937, the bankruptcy code has allowed ‘municipalities’ to declare bankruptcy.
The term ‘municipality’ is defined in the bankruptcy code as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities. But it does not include state governments.
“The second reason stems from the U.S. Constitution. The contracts clause of the U.S. Constitution prohibits state governments from ‘impairing the obligation of contracts.’ As originally understood and enforced, this clause prohibited state legislatures from passing any laws to relieve either private debt or the state government’s own debt.
Beginning in 1934, however, the Supreme Court began to interpret the contracts clause more flexibly and not as an absolute bar to state debt relief laws. Even under the flexible modern approach, however, the Supreme Court in 1977 reiterated that ‘a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money (on something else.)’
Thus, were Congress to amend the federal bankruptcy code to authorize states to repudiate debt, the Supreme Court would then need to decide the novel constitutional question of whether such debt repudiation would nonetheless violate the contracts clause of Article I, Section 10.”

And then we come to the really ignorant part.

“There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,” McConnell said.

“My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that,” he said. “That’s not something I’m going to be in favor of.”

This image has an empty alt attribute; its file name is st-louis-fed-quote.pngIf you understand the previous, ignorant paragraph, please let me know what it means.

The federal government does not borrow. As the Fed says, the federal government (unlike state and local governments) is not dependent on credit markets to remain operational.

What wrongly is termed “borrowing” actually is the acceptance of deposits into Treasury Security accounts (T-bills, T-notes, T-bonds).

The deposits remain in the accounts, earning interest, until maturity, at which time they are returned to the account owners. No taxes or taxpayers are involved.

The federal government never touches these deposits. Why? Because being Monetarily Sovereign, the federal government has the unlimited ability to create U.S. dollars. It never can run short of dollars.This image has an empty alt attribute; its file name is greenspan-quote-2.png

So why does the government issue T-securities, if it doesn’t need or use the money? Two reasons:

  1. To provide a safe place to park unused dollars, which helps stabilize the dollar, and
  2. To help the Fed control interest rates, and thereby control inflation.

McConnell either knows all of the above, in which case he is lying to the American public, or he doesn’t know it, in which case he is far too ignorant to be a U.S. Senator, much less the Senate Majority Leader.

Illinois has a worst-in-the-nation $138 billion unfunded public employee pension liability. Some Republicans have discussed whether the state should ask the federal  government to allow it to file for bankruptcy.

At present, such a move is prevented by the “sovereign immunity” clause against states afforded by the U.S. Constitution.

It also would be fraught with complications, potentially increasing costs for states to borrow if investors were not protected for bonds taken out for things like road construction.

More importantly, McConnell’s idea (if one can call it an “idea”) would transfer dollars from one part of the private sector and give it to another part of the private sector.

This would bring no net value to the economy, and do nothing to prevent recessions or depressions.

By contrast, if the federal government financially supports states, it creates brand new dollars, a net benefit to the entire economy and part of the effort to prevent recessions and depressions.

You can decide which.

Democrats in Washington, including House Speaker Nancy Pelosi, have said federal dollars for state and local governments have to be part of the next coronavirus relief package.

The House is scheduled to vote this week to approve a measure to replenish the federal Paycheck Protection Plan aimed at helping small businesses keep workers on the payroll.

McConnell and Senate Republicans rejected Pelosi’s attempt to inject federal aid to states in the small-business funding measure.

The GOP doesn’t want to help the states for two main reasons:

  1. The states having the most difficult financial problems are those having the largest cities, where minority voters are given voice, i.e. “blue” states. The GOP states are the ones doing the most to prevent minorities from voting.
  2. Helping the states would help the non-rich, thus narrowing the Gap between the rich and the rest. The GOP, being the party of the rich, does not want the Gap to be narrowed. As the GOP demonstrated with its tax revisions, it wants the Gap to be widened.

But she told Bloomberg Television on Wednesday that the Senate GOP leader had pledged not to exceed $250 billion in funding in the latest measure and “now, we are up to $480 (billion),” including assistance to hospitals and for enhanced coronavirus testing.

The above paragraph merely demonstrates that McConnell has no real plan for growing the economy, but only wishes to obstruct anything the Democrats propose.

In summary, there are no good reasons why the federal government should not support the states. In fact, such support would cost taxpayers nothing, while helping fend off recessions and depressions.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell



The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.


One thought on “State bankruptcy? Another really ignorant idea from GOP’s McConnell

  1. As I was saying:

    Breaking: The rich are faring well in the COVID-19 pandemic

    You may look at your 401(k) or IRA, then the stock market, and assume that the wealthy — who own the lion’s share of stock — have taken a huge hit.

    You would be wrong, according to a new report from the Institute for Policy Studies, a liberal think tank. Between March 18, when Forbes decided to catalog the wealth of the wealthiest, and April 10, “the combined wealth of America’s billionaires increased by $282 billion,” topping their 2019 levels, the report found.

    The gist of Forbes’ article on the world’s super-rich “was, ‘Hey, the pandemic is really affecting even the billionaires; their wealth is down from last year globally and in terms of the U.S.,'” study co-author Chuck Collins tells Fast Company.

    “What we found was, wait three weeks and they’ve now surpassed last year’s collective wealth and now they’re surging to new heights.” Meanwhile, more than 26 million Americans have filed unemployment claims in the past 5 weeks and small businesses are teetering on the edge or closing up shop.

    Congress expanded unemployment benefits, helping those workers able to successfully file claims with their states, and tried to help out small businesses, but many of the businesses that applied for Paycheck Protection Program loans never even got a call back from their bank before the initial $349 billion dried up.

    Many “small” businesses with enough money to use the private and commercial arms of major banks got “concierge treatment” from bank employees who guided their PPP applications to the front of the line, The New York Times reports, citing half a dozen bank employees and executives.

    “Some of the nation’s biggest banks, including JPMorgan Chase, Citibank, and U.S. Bank, prioritized the applications of their wealthiest clients before turning to other loan seekers,” the Times reports.

    “Other business owners were left empty-handed, and many had struggled from the start” with “flaky online portals or backed-up queues.”


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