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john65pennington's avatar

What happens when a city or state goes bankrupt?

Asked by john65pennington (29080 points ) December 23rd, 2010

This is a dreaded thought. But, What happens when a city or state goes bankrupt?

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5 Answers

stump's avatar

I am no economist, but I think one of the things that happens is massive inflation, as the state prints more and more currency to pay it’s debts. I don’t know what happens if it can’t print currency.

Odysseus's avatar

Someone buys the debt and they become OWNED

wundayatta's avatar

Generally the state takes over and tries to manage the city until they get their finances in order. In my area, Camden NJ and Chester PA have both been taken over by their respective states. These are, of course, the poorest towns in their respective states.

The states don’t manage the cities any better, but somehow they claim they’ve done something and turn the city back to self rule. I don’t know where the debt went. Maybe it’s been restructured. I do know that the states don’t help the cities with significant funds. I suppose that the companies that made the loans lose their shirts and the city’s bond rating totally tanks. They can’t borrow money ever again without paying usurious rates. Thus poor areas get poorer.

bob_'s avatar

They stop paying for stuff, and a larger entity must intervene, as @wundayatta explained.

See this article.

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