Even Chicago’s big shoulders can’t bear the weight of their current pension crisis.

Chicago, IL

Like many cities across the US, Chicago is having trouble meeting its fiscal obligations.  It has unfunded liabilities of over $27 billion, which is even worse than Detroit, and has to start making some difficult choices to close the gap.  Some combination of higher taxes and lower services will be necessary in order to keep the city solvent.  In the end, fiscal reality will dictate the terms of what the Chicago is able to do going forward.

Even if you don’t live anywhere near financially strapped cities like Chicago, Detroit, or San Bernardino, this situation will have an impact.  The bond market will charge cities higher interest rates due to the increased risk of default, meaning a higher cost of borrowing for other cities.  Municipal bonds will no longer be seen as safe investments due to recent bankruptcies, which will cause capital to flow to other investment instruments.  This in turn can impact the prices of stocks, mutual funds, bank interest rates, and other financial products.

Expect the municipal debt situation to get much worse before things improve.