The Phaserl


Detroit the Beginning of a Trend in Municipal Debt?

by George Leong, Investment Contrarians:

“Motor City,” USA is in trouble. Detroit, straddled with close to $20.0 billion in debt, simply could not move forward and was forced to declare bankruptcy late last week—the largest bankruptcy in U.S. municipal history.

The news was not unexpected, as the city had already faced a massive migration of people along with industries. The migration’s end result was a significant decline in revenue base—this means unpaid bills, projects put on hold, mounting interest payments, and just general malaise within the community. Mind you, Detroit wasn’t always like this. My wife grew up in middle-class Detroit when it was beginning to show cracks in its foundation, but nothing like its recent cracks.

You hear about the 45,000 street lights that have to be replaced, but there is no money to do so. There are also the tens of thousands of empty and crumbling houses and buildings.

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