Substitute “California” or “The United States” for “Illinois” and you get an idea of where this is all going…
“Standard & Poor's Ratings Services lowered its rating on Illinois's general obligation bonds, reflecting the state's budget gap.
The legislature's difficulties in passing a fix before the end of the fiscal year on June 30 are heightened by a constitutional rule requiring a supermajority of 60% to pass any law taking effect before June 1 of the following calendar year, Moody's said.
S&P said Thursday the state has made limited progress in addressing this year's budget gap and next year's budget balancing depend on uncertain savings from spending reductions and debt restructuring. “
"The downgrade reflects what we view as the state's deteriorating liquidity and financial position," said analyst Robin Prunty. "Illinois failed to address its fiscal 2009 deficit, which was carried into fiscal 2010. Similar to many other states, revenues are performing below originally forecast levels."
“The firm has a negative outlook on the debt, now rated at A+, largely because the credit rater has doubts about the government's willingness to implement politically unpopular measures to close the gap. The new grade is four steps below AAA.”
http://www.zerohedge.com/article/big-trouble-little-chi-town-illinois-downgraded-aa-sp-liquidity-issues
Illinois did what California did in 2009 and blinked. They decided to borrow from 2010 to pay for 2009 and not make any real cuts. They will have to make difficult decisions in 2010, or they will have to pay more to borrow in 2011.
Oh wait, that’s not true. Because they US Government will bail the states out by giving Municipal Bonds implicit guarantees of the US Government, moving the obligations for state spending from the states to the US Taxpayer…
I don’t know if this stuff all hits the fan after the Mid-Term Elections of 2010 or the Presidential Election of 2012, but at some point, investors will start to sell their US Treasury holdings and the US will have to devalue the US Dollar. It is simply a matter of when.
Watch the likes of Greece, Ireland, Spain and the UK to get an idea of how things will be done when the US devalues the Dollar.
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