Next Financial Crisis: Collapse of States, Cities

Mounting debt, accounting tricks could set up bust among municipalities
By Eiric Baardsen,  Newser User
Posted Dec 5, 2010 2:28 AM CST
Promoted on Newser Dec 5, 2010 7:52 AM CST

(User Submitted) – Several US states and cities are sitting on fiscal time bombs that could send the country careening into a domestic version of the EU debt crisis, financial experts warn. Pushed to the brink by the downturn, state and local governments are riding trillions of dollars’ worth of debt—much of it off the books—that could swamp them within a few years, the New York Times is reporting.

Drastic cuts to public services and benefits have pushed states to use accounting tricks to stay afloat, but many are running out of options. While municipal bankruptcies are rare, the risk is rising and may force the federal government to step in at some point. “I don’t like to play the scared rabbit, but I just don’t see where the end of this is,” says one expert.

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