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Cantor and Bernanke Got It Right: State Bankruptcy Law Is a Bad Idea

January 25, 2011 at 4:22 PM

Two prominent voices – a House Republican Congressional leader and the chair of the Federal Reserve – said recently that enacting a federal law to let states declare bankruptcy doesn’t make sense:

  • Yesterday, House Majority Leader Eric Cantor said he didn’t support allowing states to address their debts by seeking bankruptcy protection: “The states can deal with this and have been able to do so on their own.”
  • On January 7, Federal Reserve Chairman Ben Bernanke said that “we ought to focus on states meeting their obligations which they do have the tools to do.”

In a recent blog post and report, I explained why a state bankruptcy law isn’t needed and would do more harm than good.  States debt is not particularly high by historical standards, and there’s no evidence that states won’t be able to service that debt and meet other long-term budget challenges, just as they have successfully closed large, recession-induced budget gaps over the past several years to keep their annual operating budgets in balance.