The Next Big Crisis: State Bankruptcies

June 24, 2010 18:30


Many say that the situation in Greece is a harbinger of what is coming to the United States. They are right. But first it will come to states like New York, California and Michigan, which are stretched way beyond their means and deeply in debt.

Dick Morris and Eileen McGann at Townhall.com


Until now, the problems in these states have been papered over by federal aid. Essentially, Washington has relieved these states (and the local governments they fund) of their constitutional obligations to balance their budgets by giving them welfare checks in the nick of time. Barack Obama now seeks to pass $50 billion in additional welfare to the states.

But, since these federal funds are not necessarily recurring — and the jobs and obligations they fund are — they simply enlarge each year’s deficit hole and enable the states to go more deeply into the red.

As these deficits mount — particularly if a newly elected Republican House and/or Senate refuse to fund them — bondholders will get more and more nervous. Eventually, they will realize that the less solvent states are bankrupt and will refuse to buy their debt. Eyes in Sacramento, Lansing and Albany will turn helplessly to Washington to guarantee their debt, just as Athens turns to Berlin.

FULL STORY



Help Make A Difference By Sharing These Articles On Facebook, Twitter And Elsewhere: