Author Topic: Impact of municipal bankruptcies on investing?  (Read 917 times)

rudimentsofgruel

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Impact of municipal bankruptcies on investing?
« on: April 16, 2018, 06:39:05 PM »
Let's assume for a second that this article (and others in this blog) is spot on and the Ponzi Scheme of suburbia will most likely bankrupt most municipalities within the next decade or so.
https://www.strongtowns.org/journal/2018/4/16/where-did-the-money-go

How would that affect your investment decisions?

Radagast

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Re: Impact of municipal bankruptcies on investing?
« Reply #1 on: April 16, 2018, 07:42:41 PM »
Ummm...not at all? There have been many articles on this since 2008, and many investing theory books that point out the risks of debt not issued by the national government (ex. Unconventional Success). My question is, will a debt collapse result in inflation or deflation?

maizeman

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Re: Impact of municipal bankruptcies on investing?
« Reply #2 on: April 17, 2018, 06:21:55 AM »
The interest rates on munis tend to be lower than other bonds because they are both federal and (home) state tax exempt. It's simple enough to avoid investing in tax exempt bonds. And unless your income is EXTREMELY high, you probably shouldn't be buying those anyway.

The main other problem an acceleration of municipal bankruptcies might have on FIRE is if a state/city pension is a big part of your post-FIRE cashflow. Really no way to mitigate that one.

Now if you buy into the broader idea that it's not financially viable to maintain the infrastructure of suburban single family homes, you can expect some degree of densification, which would increase the property values and rents of houses and apartment buildings near city centers and reduce it for houses at the edge of urban areas. Since the first type of property is much more likely to be a rental and the second type more likely to be owner occupied, this also shouldn't be a major program for most MMMers who are planning to retire through real estate, although it's worth being conscious of as one possible outcome.

If you're going to conventional path of saving up money in equity index funds and then living off of 4%, I don't see any problems at all.

NoStacheOhio

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Re: Impact of municipal bankruptcies on investing?
« Reply #3 on: April 17, 2018, 07:06:23 AM »
I would be more concerned about the resulting effects on my living situation. It's hard to hedge geographic risk like this. Moving is fine and all, but if you own in one of these cities, you're going to be looking at a much lower sale price (if you can sell at all). While that's not the end of the world, it's an increase in outlay that you have to account for.

MustacheAndaHalf

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Re: Impact of municipal bankruptcies on investing?
« Reply #4 on: April 17, 2018, 08:21:55 AM »
The article says "This exchange a near-term cash advantage for a long-term financial obligation is one element of a Ponzi scheme", which suggests every bond in the world fits this author's definition of a Ponzi scheme.

But when it comes to providing measurements that show increasing problems leading to municipal defaults... I don't see any data provided.  In general you need to demand data when you're going to make investments, otherwise you'll just chase whatever theory someone proposes despite not having data to back it up.