by Wendy McElroy, Dollar Vigilante:
Chicago dances on the edge of a fiscal cliff.
It is the third largest city in the US with a population of 2,714,856 as of mid-2012. It is the economic engine of Illinois. If Chicago falls, especially into bankruptcy, then the entire state is likely to do so as well. Illinois won’t declare bankruptcy because federal law prohibits the option. But insolvency would raise many of the same questions as bankruptcy. For example, who gets paid first, or at all? And how much on the dollar? If other cities stumble, as they would, then whether Illinois officially declares bankruptcy may be a matter of semantics.
The fiscal land mine of Chicago
In early March, Moody’s Investors Service downgraded Chicago’s credit rating from A3 to Baa1. The rating is just three rungs above “junk-bond.” With the exception of Detroit, Chicago now has the worst credit rating of any large US city. The reason cited by Moody’s: unfunded pension liabilities for city employees.
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