Dennis Gartman addresses the critical issue of Illinois and the downgrade of its debt yesterday by Moody’s.
Essentially, Illinois is in line to become the next California, if not already:
The Gartman Letter: Regarding the Illinois downgrade, Moody’s downgraded Illinois’ general obligation bond rating from A1 to A2 and cited Illinois’ problems stemming from the U.S. recession. Making matters worse, Moody’s also cut other Illinois bond ratings from A1 to A2 including sales tax revenue bonds, also cut to A2 London from A1. In the process, Moody’ has taken Illinois’ rating to the second lowest in the US, ranking it just above California Baa1. In so doing, Moody’s said that the state has not yet taken action of any sort to deal with the budget gap that it is facing… a gap that Moody’s says shall be on the order of $11 billion or more than one third of its total expenditures.
Moody’s said that The downgrades are the result of high structural imbalances and little time to effect modifications to the budget in the current fiscal year, which ends June 30, 2010, as well as evidence of significant weakening in the state’s 2009 results. The problem here is not just one that Illinois is suffering through, for if Illinois, with a double digit unemployment rate is downgraded, what then of Michigan; what then of Nevada; what then of Ohio perhaps? The point here is that “There is never just one cockroach.” This problem in California, now in Illinois, is going to spread to other states very, very quickly, for once Moody’s has the courage to make the credit change there, it will be swift to make the same changes to the credit ratings of these other states too.