These cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned. Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery.
"There's not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults – more. This will amount to hundreds of billions of dollars' worth of defaults."
American cities and states have debts in total of as much as $2tn. In Europe, local and regional government borrowing is expected to reach a historical peak of nearly €1.3tn (£1.1tn) this year. US states have spent nearly half a trillion dollars more than they have collected in taxes, and face a $1tn hole in their pension funds, said a CBS programme, apocalyptically titled The Day of Reckoning.
Cities from Detroit to Madrid are struggling to pay creditors, including providers of basic services such as street cleaning.
Now it is time for the Central Banks of the US, Europe and the UK to be the providers of money of last resort for our governments and embattled local authorities. They provided £trillions worth of finance to prop up our broken banks so now is the time to stop the madness of debt.
A big story indeed, opening very interesting possibilities. The Central Banks could use its Quantitative Easing tool not just to buy existing assets but to fund future productivity and employment, stimulating the depressed economy the way the American New Deal did but without putting the nation in debt at high interest to a private banking cartel.
The Central Banks could, for example, buy special revenue bonds issued by local authorities to finance large-scale infrastructure projects. They could issue special revenue bonds at 0% or 0.5% interest to finance the project, which could be repaid with user fees generated by the finished railroad. The same could be done to build modern hospitals, develop water projects and alternative energy sources, and so forth. All this could be done at the same extremely low interest rates now afforded to the banks, saving the states enormous sums in taxes.
This is the way out of a debt based money system that forces us to destroy our wealth in order to pat ourselves back! Why is it madness? Because our pension funds buy the debt in the first place.