Government Debt and the Bankruptcy Trickle Down Effect

by 08 Oct 2012

Our government has been building massive debt for the last 10 years, and in recent years it’s become more and more apparent that the corporations to whom we gave billions of dollars and the government who’s spending over half of its income to occupy most of the globe militarily have absolutely no interest in alleviating the immense financial pressure placed on the backs of the people supporting them. As a result Americans are increasingly forced into bankruptcy and crushing poverty with 46% of Americans now poor enough to be exempt from income tax.


The immense budget slashing occurring on the state level is finally taking its toll. Chicago’s teacher pension fund found that it didn’t generate enough revenue to pay out the necessary funds to its retired teachers and was forced to sell off assets in order to cover the cost. This means that the fund generated hundreds of millions of dollars less the next year and was forced to sell off even more assets the following year to make ends meet, leaving it utterly crippled.


More and more courts across the country are closing their doors, consolidating and laying off administrative staff, and laying off public defenders. This slows the judicial process immensely which overcrowds prisons and violates constitutional rights by imprisoning some people for years without a trial because there simply isn’t anyone to process people who’ve been arrested. The loss of much of the administrative staff in the legal system results in backed up, lost, or poorly executed paperwork which can lead to unjust rulings, general inefficiency, and increased public dissatisfaction.

School Districts and Cities

In several states entire cities and school systems have gone bankrupt and were forced to declare chapter 9 in order to restructure and realign their finances. This, of course, included laying off teachers and other government workers, cutting pensions, and slashing budgets. Having entire cities drowning in their debt has major consequences in their areas, including the breakdown of roads and transit systems, shrinking police forces and rising criminal activity, and plummeting performance by students enrolled in increasingly broken school systems.

So What Does This Mean?

As this progresses government jobs are beginning to appear less and less secure, and the “guaranteed” benefits become more and more questionable and unreliable. People who worked for the government for a lifetime are simply dropped and left to fend for themselves in their old age, often forcing them to declare bankruptcy or putting them out on the street. This leaves us with even more people who can’t pay taxes, need government aid, or need to use the overworked and broken legal system to fight for their lives. That in turn compounds the pressure on those institutions who are then found unable to keep up with what’s required of them, which undermines trust in the institutions and erodes the public’s confidence in their government’s efficacy.

Alan Brady is a real estate and financial enthusiast who loves to blog about personal finance, renting, home ownership and responsible practices for mortgage lawyers.


Should CFPB have more supervision over credit agencies?