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Fears grow of euro-style debt crisis in US states (AFP)

We have all read latest news written by popular journalist. This showdown Fears grow of euro-style debt crisis in US states
(AFP)
was a long time a coming. But the news doesn’t stop here. The writer shows two wonderful talents. Read the the whole sections to see what I mean. By: US Economy

WASHINGTON (AFP) – No sooner has the last crisis ended, than warnings about the next one begin. In the dying days of the year, with the sub-prime mortgage debacle entering the rear-view mirror, economy-watchers are warning 2011 could see US states and municipalities plunge into a debt crisis of that type that has wrought chaos in Europe.

Although the US economy is slowly getting to its feet after a brutal recession, state and local budgets are still prostrate.

To the west, California faces a budget shortfall of over 25 billion dollars. To the east, New York faces a nine-billion-dollar deficit. The north, south and center of the country are not faring much better.

Only four of the fifty US states are currently keeping their heads above water; Arkansas, Montana, North Dakota and — thanks to oil revenues — Alaska, according to the Center on Budget and Policy Priorities (CBPP).

Across the country the shortfall is expected to be at least 130 billion this fiscal year.

The crisis has its roots in the recession, when all important tax revenues fell off a cliff as businesses went to the wall, one in ten American workers needed a job and high spending continued apace.

Now, with the recovery grinding onward and somewhat upward, tax revenues are again rising, but not fast enough to put the books back in order.

Revenues are still 12 percent below pre-recession levels according to the CBPP.

Analysts at the Rockefeller Institute, a think tank, warn “states will face continued, significant budget challenges in fiscal 2011 and beyond.”

“The immediate outlook is for revenue collections significantly below pre-recession levels, and growing spending pressures.”

Financial soothsayer Meredith Whitney thinks the day of reckoning is at hand, predicting as many as 100 cities could go bust in 2011.

That is, in part, because one important crutch that has prevented financial collapse will be kicked away later this year.

Washington’s massive 787 billion dollar stimulus package, which helped states greatly, will continue to fade out in fiscal 2011 and 2012.

The prospects for a further bailout are slim, as leaders in Congress and the White House seek to firm up their deficit cutting creds.

That spells government job cuts, program freezes or increased taxes.

While only the brave or foolish would predict anything but considerable pain ahead, some key players believe a fully-blown debt crisis can be avoided.

The most likely trigger for a crisis would be a major credit rating downgrade that prompts worried lenders to charge states and municipalities more for loans, putting the authorities further in debt.

One ratings agency, Moody’s, has already had a negative credit watch for US state governments since February 2008.

But Robert Kurtter, managing director of US state and local government ratings with Moody’s told AFP there was little prospect of a widespread default.

“We don’t think that there will be any state level defaults,” he said. “At the municipal level we saw only three in the last 39 years.”

But, “these are very difficult times,” he admitted. “We are looking at in 2011 the continued weak revenue… and having to back-fill the loss of federal aid.”

“We think the likelihood in the coming years is that… the default level will be higher than it has been in the last 39 years, but it will be way lower than the corporate sector or elsewhere.”

Still, Kurtter and others argue that most authorities appear willing to take tough steps to close the gap and avoid default, while political opposition remains much more manageable than on the other side of the Atlantic.

“There is a broad consensus in this country that the government sector has become too large and that public sector compensation has become too high,” he said.

But critics worry those spending cuts, if they come, will just slow the economy further, as jobs are lost and taxes increase.

“Spending cuts are problematic during an economic downturn because they reduce overall demand and can make the downturn deeper,” warned the CBPP.

“State shortfalls could cost the economy 850,000 jobs next year.”

Crisis or no crisis, more austerity is almost certainly on the way for 2011.

This news, Fears grow of euro-style debt crisis in US states
(AFP)
quoted from US Economy

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