Tags: WSJ | Moore | Cities | Detroit

WSJ'S Moore: 'It's Not Just Detroit That's in Trouble'

By David Nelson and Dan Weil   |   Tuesday, 23 Jul 2013 07:29 PM

Detroit, which filed for bankruptcy protection last week, may be just the first domino to fall among major U.S. cities, says Stephen Moore, senior economics writer for The Wall Street Journal editorial board.

Detroit's problem is 30 to 40 years of financial liberalism run amok, Moore tells Newsmax TV in an exclusive interview.

"This has been the problem among all major urban cities in America. It's not just Detroit that's in trouble," says Moore, author of "Who's the Fairest of Them All? The Truth about Opportunity, Taxes, and Wealth in America."

Watch our exclusive interview. Article continues below.



"You've probably got 10 or 15 major cities that are in severe economic distress right now because of the cascade of liberal policies that have been put in place," he says. Excessive welfare and massive pension benefits for city employees are a big part of the problem, he adds.

So will other troubled cities follow Detroit to U.S. Bankruptcy Court?

Editor’s Note: Put the World’s Top Financial Minds to Work for You

"You know, bankruptcy is not such a bad option for some of these cities," Moore asserts. "They have undertaken so much debt, they have so much legacy costs in these pensions that for some major cities, I don't really see any other way out."

Detroit certainly has no other option, he says. "What you do under bankruptcy — and this is what households do and what businesses do when they file for bankruptcy — is they reorganize. They're able to renegotiate the contracts that they have that they can't pay."

One important result of Detroit's bankruptcy is to show municipal bondholders that their investments aren't necessarily safe, Moore says.

"The gig is up here for the municipal bond market," he said. "People who buy municipal bonds and think that they're buying a risk-free asset, they're crazy. . . . That's really the lesson of Detroit."

Muni bond investors need to focus on political risk, Moore says. "You'd better start paying attention to these unfunded pensions when you buy the debts of these cities and municipalities, because if they have huge unfunded pensions, you may not get your money back."

But it's not all bleak on the urban landscape, Moore says. "There is a real future for American cities if they start to shed the liberal policies that have destroyed them."

Meanwhile, the outlook for U.S. companies is strong, he says. "I look at balance sheets of American corporations, and I just see a beautiful picture."

American businesses were overleveraged prior to the 2007-09 recession, Moore says. But, "one of the virtues of this recession — if I can use that word, virtue — is that it has a kind of cathartic effect," he says. "Businesses got . . . lean and efficient. They deleveraged. "So now American companies, "more than companies anywhere else in the world, are lean, mean fighting machines. They are the best-run companies in the world."

The only thing holding them back is government policy, such as higher taxes and increased regulation by the Obama administration, Moore says.

"But you know the good news is that Barack Obama is a lame duck already. . . . He can't get anything done, and the way I put it is the less that Washington does now, the better it is for the U.S. economy."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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Detroit, which filed for bankruptcy protection last week, may be just the first domino to fall among major U.S. cities, says Stephen Moore, senior economics writer for The Wall Street Journal editorial board.
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2013-29-23
 

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