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Detroit’s Financial Motor Finally Conks Out
Expect other municipalities’ motors to conk out, too

By Bob Stokes
Fri, 19 Jul 2013 17:15:00 ET
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Once the centerpiece of American industrial might, Motown now becomes the biggest U.S. city ever to file for bankruptcy.

On July 18, the Associated Press reported that Detroit's "long-term debt was more than $14 billion and could be between $17 billion and $20 billion." 

Although Detroit used to be the United States’ fourth-largest city, its tax base has shriveled as the city's population has dramatically shrunk over the decades. City services are in shambles, and creditors are crying foul.
 
Motown joins a list of municipalities that have had to raise the financial white flag in recent years due to decades-long spending sprees and excessive borrowing.
 
Stockton, Calif., filed for bankruptcy in 2012, and until now, had been the largest U.S. city ever to seek Chapter 9 bankruptcy protection. In 2011, Jefferson County, Ala., became the largest county to seek bankruptcy protection.
 
Because Elliott Wave International watches the bond market, it has long had its finger on the financial pulse of ailing municipalities.
 
The rush to the riskiest muni bonds comes even as a march toward default has begun. Three cities — Stockton, San Bernardino and Mammoth Lakes — have declared bankruptcy this year in California ... .
 
The insidiousness of the trend is apparent in an August 17 Moody’s Investors Services report that shows “some cities are turning [to] bankruptcy as a new strategy to take on budget deficits and avoid obligations to bondholders.”
 
The Elliott Wave Financial Forecast, September 2012
 
Many other municipalities face severe budget shortfalls, and Robert Prechter says that the trend of municipal bankruptcies is far from over.
 
The flood of municipal bankruptcies coming this decade is going to be something to witness. ... When the crisis hits, everyone will talk about how “sudden” it is.
 
The Elliott Wave Theorist, March 2012
 
But why are those in charge of city and county coffers allowing financial fiascoes to occur in the first place?
 
Prechter provides insight into that question in the same issue of the Theorist:
 
The answer is that the state’s legislators are so beholden to public sector unions that they are oblivious to the financial meltdown all around them and aren’t about to do anything before more cities’ finances hit the wall ... .
 
This is exactly the scenario we are steadfastly predicting: bankruptcy. And bankruptcy — reneging on debt — is deflation.
 
The tentacles of deflation reach far beyond the finances of state and local governments. Deflation is a rare and monumental trend that EWI suggests you stay on top of.
 

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