Mounting State Debts Stoke Fears of a Looming Crisis

Mounting State Debts Stoke Fears of a Looming Crisis

Municipal bankruptcies or defaults have been extremely rare — no state has defaulted since the Great Depression, and only a handful of cities have declared bankruptcy or are considering doing so.

But the finances of some state and local governments are so distressed that some analysts say they are reminded of the run-up to the subprime mortgage meltdown or of the debt crisis hitting nations in Europe.

Analysts fear that at some point — no one knows when — investors could balk at lending to the weakest states, setting off a crisis that could spread to the stronger ones, much as the turmoil in Europe has spread from country to country.
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Governments in Europe and at all levels in the U.S. are reeling in red ink. While economic observers note consumer confidence and retail spending are up, reports like these as well as continued high unemployment demonstrate the ongoing powerful gravitational drag exerted by the implosion of the real estate bubble into a massive financial black hole in 2008.