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Making Unique Observations in a Very Cluttered World

Friday 10 July 2009

Are Municipal Bond Defaults the Next Financial Crisis?

Reading -Are Municipal Bond Defaults the Next Financial Crisis? http://bit.ly/19mSu3

The usually quiet and calm municipal bond market is looking anything but. Just last week, Governor Arnold Schwarzenegger of California declared a fiscal emergency for the state. What impact will this have on municipal bond investors? For sure, it would be a grave mistake to conclude California’s financial problems are isolated.

Municipal bonds are debt obligations issued by states and local government to finance various projects and services for the benefit of their communities.

California’s $24.3 billion deficit is a clear signal the financial health of state and local government is rapidly deteriorating around the country. While state governments have the power to raise taxes, they don’t have the ability to print money or manipulate interest rates like the federal government. Do you own municipal bonds or bond funds concentrated in geographically troubled regions? If you do, right now is the time to be on high alert.

Bleak Outlook
“At least 48 states addressed or are facing shortfalls in their budgets for the upcoming year totaling $166 billion or 24 percent of state budgets.” observes the Center of Budget and Policy Priorities. The only two states not facing budget shortfalls are Montana and North Dakota. A decline in tax receipts has exacerbated falling state revenues and their rising debt loads.

continue reading - http://www.etfguide.com/commentary/568/Are-Municipal-Bond-Defaults-the-Next-Financial-Crisis?/

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