City Journal Winter 2016

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Winter 2016
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Nicole Gelinas
The Muni-Bond Bulls « Back to Story

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It's true the Fed has been guilty of pushing down returns but calculations done by independent bond researchers show that both Series EE and Series I maintain a lead over volatile stocks when growth is averaged over 5 or 10 years. Check out original research from as well as for charts detailing these calculations. So my feeling is that poor performance overall is leading to this complacency.
Another factor that may be helping to sustain high levels of demand for munis: concern about impending tax increases on high earners.
State legislators heard the "U" word last week when they gathered in Chicago for the NCSL summit. Unsustainable.They also heard the hard truth that all the pension "reforms" passed in the last two years have zero impact on existing unfunded liability, which we calculated at $4.4 trillion as of last year and rising fast. Fundamental "drastic reform" (as one recent study called for) now is the only solution.
If Los Angeles were to go bankrupt, it wouldn't mean that everything was bankrupt. It would only mean that big buyers of Los Angeles bonds were bankrupt.

It might not even mean that. It might merely mean that the taxpayers of the rest of the country were that much nearer bankruptcy. After all, what is to stop the federal government from bailing out LA?

No Democrat will countenance a headline "President to LA, drop dead."