Monday, December 20, 2010

State Budget Days of Reckoning

From Deal Breaker. Here's a glimpse of what's in store for 2011 and beyond.

"The most alarming thing about the state issue is the level of complacency,” Meredith Whitney told correspondent Steve Kroft on 60 Minutes. Whitney is warning about a financial meltdown in state and local governments. “It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy,” she told Kroft. Asked why people aren’t paying attention, Whitney said, “‘Cause they don’t pay attention until they have to.”…”The lack of transparency with the state disclosure is the worst I have ever seen,” Whitney said.

“Ultimately we have to use what’s publicly available data and a lot of it is as old as June 2008. So that’s before the financial collapse in the fall of 2008.” Whitney believes the states will find a way to honor their debts, but she’s afraid some local governments which depend on their state for a third of their revenues will get squeezed as the states are forced to tighten their belts. She’s convinced that some cities and counties will be unable to meet their obligations to municipal bond holders who financed their debt.

“There’s not a doubt in my mind that you will see a spate of municipal bond defaults,” Whitney predicted. Asked how many is a “spate,” Whitney said, “You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars’ worth of defaults."

Happy New Year. Would the last one out of California please turn out the lights?

Seriously--if you don't know the shape your state is in financially, then you're the one who's going to suffer most: higher taxes, higher fees, higher prices, less supply, less choice, fewer government services, and a social safety net full of gaping holes. If our federal and state governments keep dropping the fiscal ball, here's what you can do for yourself (besides move to a more responsible state).

Remember how I was always yelling about filling the pantry a year or two ago? This is why.


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