Gingrich Proposes Bill Allowing State Bankruptcies to Avoid Bailouts

Newt Gingrich is determined to again enter the national political dialogue. His latest foray involves the dicey issue of state and local government finances. His idea is to allow state bankruptcies, so that states can avert federal bailouts and potential tax increases. His target is the public service employees' pension funds, which most states have underfunded and whose liabilities are soaring. The story originally appeared in Pensions and Investments and was publicized in the financial blog Zero Hedge.

Gingrich made the proposal during a recent address to a conservative interest group in Texas. The intellectual brain behind the proposal, though, was probably Grover Norquist (photo on left).

From what I understand of his Norquist's background, he is a Washington-based, right-wing insider whose principal goal is the reduction and dismantling, as far as is manageable, of the federal government. One of his tactics is called "starve the beast," in which tax cuts cause budget deficits which, in turn, would provoke budget-balancing program cuts.

His ardent ideological opposition to New Deal programs and social amelioration agendas aligns itself quite comfortably with political bedfellows such as Sarah Palin, judicial

allies such as Antonin Scalia, and deep-pocketed financial fellow travelers such as Richard Mellon Scaife, pictured on right. (The "fair and balanced" crowd rarely discusses Scaife's media outlets and their rigid ideological slant, and really doesn't like to talk about Scaife's financing of right-wing activities.)

Essentially, Newt Gingrich, with his state bankruptcy proposal, is playing to this audience. That permitting state bankruptcy would cause municipal bond market chaos has apparently not occurred to the man who would be president. However, if need be, the idea will come to Newt. It will take the form of a whispered conversation, a planted media story, or a speech from an ambitious presidential candidate. Of course, it could just come to Newt in a dream, in which his ideas become someone else's nightmare.