Tuesday, June 22, 2010
State Governments Soon Likely to Shut Down!
Illinois has now passed California as the state most likely to default, at least that's how the Credit Default Swap (CDS) market sees it. Buying $1 million worth of protection against default on Illinois now costs $30,000. In contrast, the same amount of protection on California costs $29,700 and $24,500 for New York. ($1 million of protection against the United States will cost you $4,000.)
Let's not kid around: the states are in trouble and the worst part is there is no will in Congress right now for any help because of the Deficit Terrorists. Witness the recent scuttling of the "extender" bill in the Senate. This bill sought to extend unemployment benefits, but it also contained about $24 billion in aid to the states.
A couple of weeks ago the state of New York had to almost shut down. Thankfully this was averted because the state legislature passed an emergency spending bill, but the fix was only temporary because cash flow problems are only getting worse.
Everywhere you look the situation is becoming more and more grave with the threat of entire state governments shutting down as Congress and the president sit frozen by the cries of the Deficit Terrorists.
It is beginning to look unavoidable...there will be some government shutdowns as states run out of cash and make no mistake about it...the effects will be devastating. There is the real prospect of total anarchy as police, firemen, prison guards and other vital state employees walk off their jobs because they're not going to be paid.
We've already seen how ineffective Obama is in a crisis situation. His mishandling of the oil spill has been monumental. Now, as states begin to fall apart and devolve into chaos he will do as he's done before: freeze and seek to cast blame on others as the situation spirals out of control.