Dept. of Worst-Case Scenarios | Bleader

Thursday, September 30, 2010

Dept. of Worst-Case Scenarios

Posted By on 09.30.10 at 11:57 AM

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Reading about the Quinn-Brady debate and yet another bond downgrade reminded me that I'd been meaning to check out what happened to Arkansas, the only state that actually defaulted during the 20th century. The answer? They worked off federal money, but it wasn't good times:

In 1933, Arkansas defaulted on its bonds — the only state to do so during the Great Depression — and its state government essentially functioned on federal money for two years. It started digging itself out only when it passed a sales tax, and even then, the state had to stop building roads for 16 years.

Multiple states, meanwhile, defaulted during the mid-19th century.

Reuters's Felix Salmon argues that in a worst-case scenario states will get bailed out; it's municipalities that have the most to fear, not least from pinched state budgets. Salmon is working off a report by Meredith Whitney, who ranks Illinois as the second-most fucked state in the country: ahead of California, tied with New Jersey and Ohio, and just behind Michigan.

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