NY Times Warning: Blue State Armageddon On The Way
The Times story compares blue state debt to the subprime crisis and the Greek meltdown. A deeply disturbing graph shows a true panic underway as investors pull money out of mutual funds that invest in municipal bonds even faster than at the height of the market collapse in October 2008. With as much as $4 trillion in off-the-books pension and health care liabilities, the worst hit states may soon be unable to operate without massive federal support.
The crisis could come much faster than Washington thinks. States and municipalities sold more than $55.6 billion in debt this November even as individual investors reduced their holdings of mutual funds containing these funds by $5.37 billion in the two weeks ending November 24. If supply keeps rising while demand sinks, sooner or later prices are going to crash.
If things go wrong in the markets for blue state debt, watch out. If big blue states like New York, California and Illinois hit a point of market failure when private investors will no longer buy their bonds, Washington will have to decide what to do. Fast.
It will be ugly, and it will hurt.
Will GOP legislators bail out the public sector unions and shovel cash into the maw of improvident and badly managed blue states like so many steaming German taxpayers bailing out the lazy Greeks? Or will Congress sit on its hands while vital state services close down, unemployment spikes, and the financial markets panic? Will all parties turn to the Fed to buy up state bonds? If so, on what conditions and terms?
Read the whole thing and panic at your leisure; I do not plan on panicking until M_O_M tells me its time.
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