How can states go bankrupt?

A state is an entity just like a family, an individual or a business. The state has one important advantage over the other three entities .. it usually has a monopoly on the use of force.

It is a great power .. you can compel people to do things that they would otherwise never do, to enrich yourself and your friends. Now here is where states go offside.

The power although great is not unlimited. Sooner or later people start to rebel against the threat of a gun being waved in their faces in order to get them to alter their behaviour.

The easiest solution is to leave. Of course, gun wielding states know this and erect walls. The Iron Curtain was there to keep people in a socialist paradise, not keep them out.

People react to incentives. Punish work and savings and people will do less of it. That means you have less money to spend as a gun wielding government. Combined with politician's promises of "ever more for ever less" and you have the makings of a perpetual deficit which results, sooner or later in unsustainable debt.

That is bankruptcy, whether for a state or another entity. After all, if you could cause paradise to happen on earth just with socialism, pending, debt and coercion, Venezuela and Zimbabwe would be the richest places on earth.

The end is a double agony. First, all of the promises and entitlements are scraped away, leaving legions of people with no skills to fend for themselves. Second, what income comes in must go to repay the debt with nothing left for welfare and/or warfare states to continue their activities.


Under the present bankruptcy law in the US, states cannot go bankrupt. Municipalities can, the best known being Detroit. A year or so ago, Congress enacted special legislation to afford Puerto Rico an opportunity to reorganize its debt, and it looks a lot like bankruptcy, but is called PROMESA. You'll have to google that to find out what it means.


Chapter 9 is reserved for states and municipalities to file for protection. State's or cities within a state can use the protections afforded in Chapter 9. Cities can shed labor union demands and/or debt from labor. Sometimes a city hit with a huge natural disaster and little insurance will use it.


Yes. See this link: 4 Countries That Went Bankrupt But Lived to Tell the Tale - Tharawat Magazine


Can states go bankrupt?

yes, but they can not use the laws to file for protections

http://www.csg.org/pubs/capitoli...


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