Fears grow of euro-style debt crisis in United States
WASHINGTON: 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, economywatchers 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-billiondollar 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 lev- els, 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 cut- ting 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. -Afp