When The U.S. Goes Bankrupt, Here’s Who Gets Out With The Least Pain

1. At a recent conference on municipal finance, a paper by James Spiotto of Chapman Strategic Advisors articulated a disarmingly simple yet incontrovertible principle: No matter how difficult the problem of insupportable public debt, or how it came about, no workable solution can disproportionately punish a single constituency or jeopardize a “vital mission of government.” The challenge for every bankrupt democracy is to find a way forward that brings along all groups.
2. Going down to the state and local level, a May 2018 report by Harvard University’s Kennedy School revealed that public pension funding in New Jersey and Kentucky is already at “high risk of insolvency” and will shortly threaten the financial security of both current and retired government workers.
3. Illustrating his point in the case of underfunded public pensions, Spiotto analyzed the four most politically feasible mechanisms for addressing the problem: a prepackaged bankruptcy plan, creating a special federal bankruptcy court, creating a national commission with the power to bind all parties, and the last-minute willingness of state legislatures to finally bring expenditures in line with revenue.
4. Whatever our individual loss–be it paying higher taxes, receiving a reduced public pension, losing previously promised medical benefits, facing higher mortgage interest rates, or going even deeper into debt to attend college–the resentment will not ebb quickly or easily.
5. Of course, maintaining political stability is not the same thing as addressing the anger each of us will feel as we come to terms with our own share of the looming government bailout, especially as vindicated policy analysts insist on reminding us of how our sacrifices could have been avoided with better leadership in years past.
6. The historical truth is that whenever a society can no longer borrow enough to cover the gap between promised expenditures and actual revenue–that is, when government can no longer tap the credit markets without paying a prohibitively high interest rate–every faction endures a painful share of the subsequent economic adjustment.
7. While the economic boost from recent Republican tax cuts will likely produce enough revenue to buy all levels of government some extra time, few experts believe growth alone can provide anywhere near what is needed to make good on most government promises.

http://thefederalist.com/2018/10/25/u-s-goes-bankrupt-heres-gets-least-pain/