When 'Default" option is Not the Default Option

Quite a few writers, including this blogger, predicted few years ago that local governments would face serious debt crises. That prediction appears to be coming true...

$2tn debt crisis threatens to bring down 100 US cities | Business | The Guardian: "More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery.

'Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy,' Whitney told the CBS 60 Minutes programme on Sunday night....

American cities and states have debts in total of as much as $2tn. In Europe, local and regional government borrowing is expected to reach a historical peak of nearly €1.3tn (£1.1tn) this year.

Cities from Detroit to Madrid are struggling to pay creditors, including providers of basic services such as street cleaning. Last week, Moody's ratings agency warned about a possible downgrade for the cities of Florence and Barcelona and cut the rating of the Basque country in northern Spain. Lisbon was downgraded by rival agency Standard & Poor's earlier this year, while the borrowings of Naples and Budapest are on the brink of junk status. Istanbul's debt has already been downgraded to junk.,,: