Several States Are In Financial Distress Similar to Greece: Drastic Painful Solutions

In recent months the news has been all about Europe and how European countries need to cut their deficits. However, the day is coming very soon when U.SD. states will have to act as their problems are similar.

Bloomberg has a nice summary on the states' dire straits. California's unemployment was 12.4% in May, that is 2.7% higher than the national rate. The budget gap is $19B. The solutions are to end main welfare program for 1.3 million families or the borrowing more than $9B in the bond market.

Neither will do any good to the "economic recovery".

"California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone".

Finances in Arizona, Illinois, New Jersey, New York and other states are in similar situations.

"Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP."

“States are going to have to cut back spending and raise taxes the same way Greece and Spain are,” says Dean Baker, co- director of the Center for Economic and Policy Research in Washington. “That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”

New Jersey Governor Christine Todd Whitman: “States don’t have a choice anymore,” “These problems are going to require major surgery.”