Here's the question I put to Sen. Jim DeMint during a brief telephone interview last night:Chances are pretty good that Illinois, California, and New Jersey, and maybe a dozen or more other states, are going to go broke -- because they cannot meet their pension expenses. All told, the states are about $3 trillion short, and they're going to come looking to Congress for a bailout. Are you going to write that check, or are you going to let them hang and watch the municipal-bond market collapse? Which angry mob do you want to face?
Senator DeMint did not exactly say, "We're going to let the municipal-bond market collapse," but it sure sounded a lot like that. Republicans have a three-part plan for the states' fiscal crises:
First, create a legal process to allow states to renegotiate debts and union contracts in something akin to bankruptcy.
Second, forbid a congressional bailout of the states.
Third, forbid the Fed to buy states' debt as part of a freelance Ben Bernanke bailout.
In other words, prepare a site for crash-landing state finances and then forcibly guide them to it.
That third part is interesting, no? Republicans are looking askew at the Fed's new career as at-large bailout-maker.
The Republicans' plan looks pretty ugly, but I do not see any plausible alternatives. And I see one big opportunity: This is the chance to pry the parasitic government-employee unions off the body politic. They have bankrupted the states, and the resulting crisis gives us the means and the opportunity to put an end to their plunder. When those contracts get renegotiated, Republicans should insist that they address more than pensions.
Interesting plan. A lot could go wrong, but we are really sailing into uncharted waters here with lots of states and the feds in bankruptcy territory. Decoupling the public unions from the state would go a long way to keep this debt bomb from happening again.