Bloomberg is reporting
Angel Merkel Rep. Paul Ryan, Republican “Young Gun”and new House Budget Committee chairman, says he and his party won’t bailout states who are facing potential defaults. Just after the November election we posted this was coming.
Listen to Ryan and you can fully understand and appreciate German Chancellor Angela Merkel’s tough position on Europe’s sovereign debt crisis. Bloomberg writes,
“We are not interested in a bailout,” the Republican from Wisconsin said yesterday in Washington. Ryan said some states are “already telling us” that, when asked how he would respond if he was told one was in danger of defaulting.
U.S. states face a combined $140 billion in deficits in the next fiscal year, the Washington-based Center on Budget and Policy Priorities said Dec. 16. State tax collections remain below pre-recession levels, according to the Nelson A. Rockefeller Institute of Government in Albany, New York. No state has defaulted on its debt since Arkansas did in 1933.
“Should taxpayers in frugal states be bailing out taxpayers in profligate states?” Ryan asked during a forum near the Capitol. “Should taxpayers in Indiana, who have paid their bills on time, who have done their job fiscally, be bailing out Californians, who haven’t? No, that’s a moral hazard we are not interested in creating.”
Unlike some of the PIIGS, most American states, though rollover risk is increasing, do not have crushing debt burdens, but do have large cash flow problems, i.e., budget deficits, that need to be financed by borrowing from an increasingly unreceptive market.
State and local politicians — in all parties, from those left of the salad fork to those so far right, also left of the salad fork — have failed to address their massive revenue deflation, some, of which, is cyclical and some structural.
Never underestimate the possibility of a movement to rise up in California demanding the state leave the
Euro Dollar and create its own Central Bank! In fact, local currency movements — which are just a step above bartering — are big in California. They always seem to fail because they get the exchange rate wrong. For example, one unit of local currency can buy an hour of gardening services or a visit to the local doctor. Nice arbitrage, no?
Senate Budget Panel Working on Plan to Help States; Bernanke Does Not See States Defaulting on Muni Debt – Bond Buyer
Chaffetz Looks to Fire Warning Shot On Pension Fund Bailout – KCPW
Bond investors rattled by Illinois’ budget woes – Breaking Business