Ben Bernanke is speaking in front of the Senate today, and one of the big topics during the Q&A session is the state of muni finances.The Fed Chairman doesn’t expect any state to default, but he also says he doesn’t believe it’s within his mandate to bail out the states (e.g. by buying muni debate) should it come to that.
The Senators keep hammering on this point, and there’s a reason for it. The GOP is hoping for states to collapse, and they want to be absolutely sure nothing gets in the way of that.
That’s not our opinion… James Pethokoukis, the conservative Reuters columnist, reported in December that republicans have a “secret plan” to pusht he states into bankruptcy. Part of that plan was the non-inclusion of the Build America bond program in the lame duck tax deal.
They’re also pushing for changes to accounting rules that would force states to present their finances in a manner that would look uglier. Also, part of it is endless talking about the issues, which has the effect of unnerving investors.
There are various reasons the GOP wants this. One is that it would be disruptive to the economy ahead of the 2012 election. The medium term goal is to crush public sector unions. A longer term goal is to fundamentally alter the pension system.