It's amazing how this is being noted as "faith questioned." I mean, unless you are an imbecile.
From Bloomberg:
"Detroit’s record municipal bankruptcy may set precedents for how retirees and bondholders are prioritized when a locality falls into distress. It’s poised to test the assumption in the municipal-debt market that states and cities will raise taxes as high as necessary to make full payments on bonds backed by their full faith and credit."
As high as necessary eh?
So a city or other municipality can raise taxes to 100% of residents income if necessary to pay bondholders, and should? Bondholders should assume that such a premise exists?
There are plenty of people who are spending too much time in Denver smoking bong hits among these so-called "investors" and ratings agencies. I say this because there is plenty of evidence that raising taxes provides a disincentive to behavior and, what's worse, people CAN and DO move to lawfully avoid paying said taxes.
The premise of "full faith and credit" is therefore at the outset a lie to the extent that anyone believes it means that a government can raise taxes "as high as are necessary" to make bond payments. They can certainly try but rates are immaterial; what matters is how much you collect.
If you have a 100% tax rate but the response is that the population all quits working and sits on their ass, collecting from the public dole instead, you get zero from that tax in actual revenue.
Isn't it funny how nobody wants to talk about that little problem, even when we have Detroit as a shining example of the consequences of failing to do so?
