Should States be Allowed to Declare Bankruptcy?

What Does the Future Hold?

For all the heat and smoke generated by the debate over state bankruptcy, itโ€™s hard to tell if thereโ€™s any fire.

Three days after Gingrich announced that the state bankruptcy bill would be introduced, the leader of Gingrichโ€™s own party in the House, Virginia Republican Eric Cantor, declared the idea dead on arrival.

โ€œI donโ€™t think that that is necessary, because state governments have at their disposal the requisite tools to address their fiscal ills,โ€ Cantor told Reuters.

Some have dismissed the entire debate as an effort by Gingrich to win headlines as he mulls a campaign for president in 2012.

[Resource: Credit Cards with Good Intentions]

โ€œThis is a cynical proposal intended to incite a panicked response to a phony crisis,โ€ California Treasurer Bill Lockyer, a Democrat told the San Francisco Chronicle, comparing the proposal to scares about aliens and killer bees. โ€œNo state wants to or would declare bankruptcy. It would severely injure the economy, local businesses, investors and taxpayers.โ€

โ€œAll presidential candidates like to be associated with polices that gain the nationโ€™s attention,โ€ says Neiman. โ€œAnd I think [Gingrich] is scapegoating public employees to exploit public angerโ€ over the recession. Though the proposal appears stalled at the moment, conservative activists say they plan to continue pushing for it.

โ€œWith the dire financial situation of many states today,โ€ Haley says, โ€œGingrich is merely proposing that states should have the same flexibility to restructure their finances.โ€

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