Over at DollarCollapse.com John Rubino asks, “Why Isn’t Illinois a Bigger Story than Greece?” Describing the Land of Lincoln as a “failed state” with $8.5 billion in unpaid bills, $27 billion in outstanding bonds and $80 billion in unpaid pension liabilities, he writes:
For investors it’s a clear sign that some sort of default is coming.
Why then would anyone buy an Illinois municipal bond, or accept a state contract that requires future payments, or move a business to the state, or keep a business in the state, or do anything else that required faith in the willingness or ability of the state to pay its bills? The only possible answer is that Illinois isn’t Greece; it’s Spain or Italy, an entity so big and important that its failure is inconceivable. When it hits the wall, Washington will have no choice but to step in and cover its unfunded pensions and teacher salaries and muni bond interest. In the same way that a Spanish bond is really a German bond because Germany has no choice but to make good on it, the big insolvent US states are wards of the central government.
If and when the federal government starts covering the liabilities of broken states, there will be no limit to the drain on federal resources and the transfer of wealth from other states. Virginia needs to elect hard-core fiscal conservatives to Congress who will fight such an eventuality tooth and nail.
At the state level, it is all the more imperative to build rock-solid finances that can withstand the contagion of fear that will emanate from Illinois, California or any other state that might default.
— JAB
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