(Zerohedge) Following an Illinois Supreme Court ruling that struck down a pension reform plan aimed at closing a $100 billion funding gap, Moody’s downgrades Chicago to junk, giving the city the dubious distinction of being the only major city “in recent history” to carry such a low rating other than Detroit. Chicago now faces accelerated payments to creditors of more than $2 billion.
In the end, this serves to underscore not only the pitiable plight of the country’s pension plans (which, by the way, are likely to be far worse off on the whole than meets the eye due to the fact that managers cling to optimistic assumptions about investment returns in order to avoid having to revise the present value of their liabilities sharply higher) but also a worrying trend that we discussed earlier this week — namely, that state and city governments across America are going broke.
This is big, folks. Because there are at least twenty other state /municipal systems with unfunded liabilities at least as large as those in Chicago. This bomb has been ticking for over 40 years, and now it is coming due – not just in Chicago, but in the budgetary behavior of every major metro in the US (and Europe, too). Once the mad rush to the door begins, there will be no stopping it.
Margin calls have a way of cutting across all asset-classes, so the implosion cannot and will not be limited to municipal/state bonds; it will tear right into the heart of the NYSE and Nasdaq…
It will create a tsunami of asset displacement and revaluation, from which nothing will remain untouched.
WE HAVE BEEN WARNED