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Detroit: Why States Will Secede from the Union

July 25, 2013 By E.J. Smith - Your Survival Guy

Bankruptcy expert David Skeel makes the case that federal bankruptcy has precedent over state law. Skeel isn’t suggesting a federal bailout, but isn’t that the next step? If pension debt by irresponsible states becomes every state’s problem, then why wouldn’t a fiscally responsible state want to succeed from the union? The unintended consequences of federal bankruptcy law may be that we’re all in this together whether we like it or not. Stay tuned.

A very similar argument, along with a related argument about state sovereignty, led the Supreme Court to strike down the first municipal bankruptcy law passed by Congress in 1936. But two years later, in United States v. Bekins, the court reversed course, concluding that a slightly amended bankruptcy law didn’t violate the Contracts Clause or interfere with state sovereignty.

Detroit’s pensioners, in short, would ultimately prevail only if they could persuade the Supreme Court to overturn Bekins—which would in effect invalidate federal municipal bankruptcy law altogether, since the same logic would apply not just to pensions but to any obligation protected under state law.

It is unlikely the Supreme Court would take this step. The court has interpreted Congress’s bankruptcy powers (which also are spelled out in the Constitution) very broadly. And the power to facilitate the adjustment of debt lies at the heart of bankruptcy.

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E.J. Smith - Your Survival Guy
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998.

E.J. has trained at Sig Sauer Academy in Epping, NH, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention.

E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris.

Please get in touch with E.J. at ejsmith@yoursurvivalguy.com

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