States and Municipalities will be the next ones to go under due to fiscal problems

The next shoe to drop will be the state and municipal governments.  The real question is will they get bailed out?  We hope not.  I'd rather have some municipalities go under than state governments.  In fact, most municipalities get some aid from their home states.  If that dries up, all bets are off.  Via Guardian:
Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery. Nor are European cities safe – Florence, Barcelona, Madrid, Venice: all are in trouble

More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

..."Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy," Whitney told the CBS 60 Minutes programme on Sunday night.
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60 Minutes:  State and Local governments:  The day of reckoning

Comments

  1. This is what I was concerned with as far as California goes. If the states fall apart and are no longer fiscally sound, then what happens next? People have told me that states can't go bankrupt...but I'm wondering if the Federal territory is the next step...hard to say.

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  2. States definitely should be able to go bankrupt. But it looks like the prevailing wind is toward bailouts, which means that the risk is then transferred at the Federal level.

    If the states go bankrupt and we choose to bail them out, its a done deal.

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