Is the State Bond Market the Next Bubble to Pop?

Wednesday, February 23, 2011
By Paul Martin


The immutable law of the bond market is about to be broken.
The perfect storm is brewing, says Republican Congressman Patrick McHenry. States are lining up cap in hand before President Barack Obama, expecting a bailout just like everyone else. But “the era of the bailout is over,” he says.
What this means is that for the first time in decades, states face a Hobson’s choice to balance their budgets. No matter how they do it, it will be extremely painful.
Hurricane-force winds are tearing at state economies. Government revenues are falling. Tax increases are hugely unpopular. Unemployment is high and unemployment insurance payments are draining coffers. House prices continue to fall. Economic growth is near stall speed.
And most dangerous of all, pensions are underfunded by an estimated $3 trillion.

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