Is a "blue state" meltdown fast approaching?

Walter Russell Mead has an interesting take on the subject, in his blog.

Among his observations:

"The global financial crisis could be heading to a blue state near you: that is the latest grim news from the New York Times: 'Mounting Debts by States Stoke Fears of Crisis.' Normally a cheerleader for the free spending (in bluespeak, compassionate) policies of the public sector union dominated, high tax, high cost states like California, Illinois and New York, the Times now warns that fiscal ruin could be at hand.

"The problem is state debt. New York, California and Illinois look more like Greece to their bondholders every day. Since the November elections, investors have been dumping their bonds, and hedge funds are betting against them, perhaps realizing that a Republican House is not going to offer generous, condition free bailouts. ...

"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. ...

"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?

"While an unprepared, polarized Washington argues, markets will be melting down. Risk unnerves bondholders; the sight of clueless debates among angry politicians makes markets unhappy in good times. In times of crisis this is a scenario for total panic. ...

"Back before the midterms, investors were justified in thinking that Democratic majorities in Congress would rally behind a Democratic president seeking to save the top Democratic states from a financial meltdown. (Much of last year’s ‘stimulus’ actually consisted of emergency cash transfers to strapped states in order to prevent mass layoffs and service cuts.) Now it is much less clear where the states stand and what kind of help will be available. Uncertainty equals risk for bond investors: the White House and the Congress need to plan now to deal with the possible crisis.

"But if Republicans will be (*)(*)(*)(*)ed if they do and (*)(*)(*)(*)ed if they don't, Democrats will just be (*)(*)(*)(*)ed. The prospect of a blue state fiscal crisis is an uncomfortable and threatening one for the GOP; it spells potential catastrophe for the Democrats. The bankruptcy of the big blue states would symbolize the bankruptcy of Democratic party policies to wide swathes of the voting public. Tensions within the Democratic Party would explode: unionized public sector workers would simply not be able to emerge from this kind of crisis without savage layoffs and agonizing cuts in their pay, benefits and pension packages. All the promises (mostly) Democratic politicians have made to them over decades will be exposed for the hollow frauds they were. ...

"The fiscal meltdown of the big blue states, if financial Armageddon actually arrives, will be the biggest domestic crisis for the American people since the Depression, and the biggest crisis for the Democratic Party since the Civil War."

Here is the link: http://blogs.the-american-interest....mes-warning-blue-state-armageddon-on-the-way/

 

the US is broke....the only difference is that the federal government can print money while the states can't!

 

Good point.

I have often said that if I were to do what the federal government does--i.e. print money with nothing to back it up--I would be (quite correctly) identified as a counterfeiter, and sent to The Big House for a very long time...

 

Well, if red states weren't such hypocritical welfare queens, taking far more in federal tax dollars than they remit, maybe the blue states could balance their own budget.

It's easy to brag about low taxes and state debt when you're stealing money from my pocket.

 

the question now is...when is the shoe going to drop and how much is it going to cost the federal government to bail the states out?

 

States sorted by debt as percentage of GDP (3rd column)

Kentucky 25.73% 28.30% $169.4 3.7% 4.4 more
RIsland 23.49% 27.83% $52.0 3.7% 1.0 more
Nevada 20.29% 26.26% $132.0 2.1% 2.8 more
MA 20.07% 26.19% $397.2 3.8% 6.6 more
NY 26.61% 26.13% $1,160.9 2.8% 19.4 more
PA 19.97% 24.36% $606.5 4.0% 12.8 more
Texas 21.20% 23.58% $1,193.7 3.8% 25.6 more
S Carolina 29.39% 23.41% $172.2 3.4% 4.7 more
Alaska 37.08% 23.01% $47.0 5.9% 0.7 more
Nebraska 25.12% 22.60% $94.3 4.6% 1.8 more
Illinois 20.84% 22.46% $672.5 3.1% 12.9 more
Alabama 25.19% 22.44% $182.6 3.6% 4.8 more
N Mexico 29.54% 22.14% $78.3 3.6% 2.1 more
Arizona 26.43% 21.83% $272.4 2.9% 6.5 more
Colorado 18.20% 21.67% $272.1 4.1% 5.1 more
Florida 24.35% 21.65% $787.5 3.1% 19.1 more
CT 16.95% 21.38% $244.2 3.2% 3.6 more
Michigan 24.18% 21.30% $386.2 2.5% 9.8 more
Indiana 20.98% 21.29% $278.8 3.0% 6.5 more
All states combined 22.32% 19.67% $15,299.0 3.5% 311.5 more
Washington 21.86% 19.63% $370.0 4.2% 6.8 more

 

according to those numbers it dont look that bad but seems alot of them are in dire straights!

 

Ok, that was virtually unreadable so I'll post a screenshot:

 

Liberals and their constituent ethnic minorities will be getting what they deserve.

Lol.

 

but if the federal government bails them out then everybody pays!

 

I probably should have stated my point. The Forbes list seems to just use the straight up dollar amount and orders the states that way which is EXTREMELY misleading as it doesn't factor in population size and/or GDP.

As we can see from the tables provided, the differences between the "top" states isn't all that significant when ordered by debt as a percentage of GDP.

So I call partisan bull(*)(*)(*)(*) on the Forbes article. I'm sure that total dollar amount is important, however, it doesn't show the entire picture and casts a more negative light on the more populated states as opposed to states that have more cows or sheep than people.

 

Did you not read my post? The only reason so-called blue states are any worse off, if they are at all, is because so-called red states feed at the federal trough. If you removed all federal money from the picture, most blue states would be in better shape than most red states, because they don't depend as heavily on it.

 

once the states start to fall like flies this will most likely trigger the next financial crisis..that... or possibly the defaut of Spain...either could trigger it!

 

oboobma will be whipped this fall, and many of these states will be the reason why.

 

This position was abundantly clear a long time ago but all I ever got was hoots of derision from the Hilly Billy Boys when I pointed it out . Now only clowns would deny it .

The Government knows that the roof will fall in soon because they moved very fast to get legislation saying that States cannot get their tab picked up for them .
The most I laughed was when I heard California was looking at raising money by allowing advertising material on car number plates .
As Jesus said ," I weep "

 

Not sure why you think that red states don't also have debt issues. If the blue state collapse, so will the dependent red states, and states like Texas that have amassed huge debts and no realistic way of paying for them.

 

Good post. I live in the bluest part of California. I'm loving the agony I see everywhere. These are all Democrats and leftists begging by the side of the road. I love seeing public employees lose their jobs. I love seeing the public schools slash their budgets. I love seeing public employees' defined benefit pension plans accumulate unfunded liabilities. Every day brings more good news.

California Governor Jerry Brown has proposed tax increases as businesses and jobs flee the state. But the Legislative Analyst tells Brown his tax increases will still leave a deficit. I'm loving this. More please.

 

Given education is a merit good this shows a lack of consideration of economic need.

 

Looks like somebody finally woke up at The Times. Took them long enough!

 

Interesting sentence.

 

Only certain kinds of education are "merit good".

A technical degree, a medical degree, something like that is a "merit good".

The problem is we have too many bull (*)(*)(*)(*) degrees like "Social Justice and Diversity" that kids take because they are easy to pass. All you have to do is agree with the professor in all your political leanings and you get an A.

Colleges have ceased to teach skills and are nothing more than indoctrination centers for progressive thought. Unfortunately they forgot to throw an economics course or two in there.

 

Just basic economic knowledge

 

It is true that educators tend to be more liberal. However, that's a reflection of education. One is able to be independent and not a drone for Fox News

 

Syntax not substance.

 

The federal reserve, an entity proponents wholeheartedly claim is a government institution, admitted giving Europe 16 trillion during this latest financial crisis. 16 trillion, with a "T". There is no way the government can get on national TV and explain why they will bail out foreign nations and not US states. Basically, states have them by the balls. And I'm sure states like California know this. Austerity measures would have come to fruition 2 years ago if they had not this knowledge under their belt.