Is Government Debt a Ponzi Scheme?

Is Government Debt a Ponzi Scheme

  • Yes

    Votes: 1 20.0%
  • No

    Votes: 1 20.0%
  • What is Ponzi? Can you eat it?

    Votes: 0 0.0%
  • What is Government? What is Debt? What is 'is'?

    Votes: 2 40.0%
  • (Ponzi was a Who by the way. Who knew?!)

    Votes: 1 20.0%

  • Total voters
    5

Abhishekm

Well-known member
I know what you guys are thinking. Oh, a 'Every American owes half a million dollars', 'Your sending your Grandkids to Debtors Prison' thread. But not really.

I'm actually asking about local government programs and debts. 'Oh, State Debt then?' Is your thought. Maybe, but I'm actually just really confused by City and Municipal debt.

Like, How does that work? Who owes it? Who is it owed to? Whats the point of a Municipal Bankruptcy. How can a bankrupt city even have regular programs let alone welfare ones? Whats the point of collateral if City assets are protected from the repo-man?

If a city defaults but everyone moves out does the debt still exist? What is a City? Do Public Sector Unions technically count as a Cities dependents for filing purposes?

If a city government declared itself legally dead and filed to charter a new city in its place what would happen? If you add a New to a Cities name and call it a spiritual successor does that technically make it a legal heir? Would the Parent City owe Child Support? Would New York, LA or San Francisco make for better Trump style Bankruptcy jokes in the years to come?

These are the things I think of over lunch and now you are thinking of them too.

(Edit: I post this here instead of Community Pub because I'm hoping for real opinions and explanations along with the plethora of jokes the topic and real world situation rightly deserves)
 
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Bear Ribs

Well-known member

The city issues municipal bonds, which citizens (and sometimes non-citizens) buy. The bonds "mature" at an agreed on date and the value of the bond is owed back to the holder, with interest, on that day. Thus the debt is owed to whichever persons own the bonds. If every person moves out of the city the money is still theoretically owed to the bond holders, but in that case the city no longer exists so good luck collecting.

The city can default on it's debt and not pay anything but that will hurt their credit score tremendously and then they will not be able to issue any more bonds except at a higher interest rate to cover the risk that they won't pay again. The US was reduced from it's long-standing AAA rating simply because congress came close to not getting a budget prepared on time once.
 

Abhishekm

Well-known member
Thanks for the explanation on 'Who owns the debt?'. now any opinon on unfunded liabilities by cities or political commentary on their use by local politicians? Also got any good debt jokes? I'll take jokes or one lines more than memes.
 

Bear Ribs

Well-known member
Generally speaking it's a good idea for a city to borrow at certain times to stimulate the economy, and reduce their debt at other times to shrink bubbles. Pay down the debt when things are good and borrow to get through the tough times, basically.

Exactly when this should happen is going to vary a lot according to your position on the economic axis and a list of factors too long to cover that depend on the town, how much it can expand, what kind of industry it has, whether the greater economy it's part of is Bullish or Bearish, etc. You're talking an absolutely massive part of economics there.

You also have to consider that cities don't treat debt the way humans too. Racking up an uncountable debt for an individual is bad, because eventually you're going to retire and need to live on your savings and also lenders know you're going to get old and take that into account when loaning money to you. Cities never grow old and retire* so they can sustain a certain level of permanent debt that a human cannot.

*Aside from becoming a ghost town of course.
 

gral

Well-known member
Generally speaking it's a good idea for a city to borrow at certain times to stimulate the economy, and reduce their debt at other times to shrink bubbles. Pay down the debt when things are good and borrow to get through the tough times, basically.

Also, the alternative(at Federal level) to borrowing to finance the government is printing money - there's no escape, if you have a deficit, your alternatives are debt or inflation.

You also have to consider that cities don't treat debt the way humans too.

Simplifying things a bit too much, governments, like companies, depend on credit - debt is OK, as long as it doesn't harm your credit rating.
 

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