The Municipal Bond Market

I have written several times about the echo crisis in state and local financing.

This article published today in the WSJ is a reminder of my concern:

Hilsenrath, Jon, King, Neil Jr., 2011. Bernanke rejects bailouts. The Wall Street Journal, Jan. 8.

From the article:

"The $2.9 trillion municipal-bond market has been stung recently by worries that some cash-strapped cities or states won't be able to pay off or roll over debt. Costs have risen broadly for municipal borrowers. The market also faces challenges from the expiration of the Build America Bonds program, which helped cities and states borrow $165 billion at interest rates held down by federal subsidies." bold added

I think many forget that stimulus programs are expiring. The conclusion of stimulus efforts in the housing industry, for example, is thought to be the reason for continuing weakness in home sales and prices, and perhaps a prelude to a "double dip" recession for the sector.

The US economy is perhaps not healthy enough to endure the expiration of stimulus programs. Probably 2011 will be a low growth year in terms of GDP.

Local, state, and federal taxes will likely increase during the next few years.