The U.S. municipal bond market started to come apart last week. I think this is being led by the big California Muni Bond funds, but it has dragged all of them into the vortex.
This bears close watching. As I have said many times before... California absolutely, positively does not make it to the end of the 2nd quarter, 2011 without needing a massive Federal bailout... a bailout that, given the new makeup of Congress, I do not think is forthcoming in the way we typically define "bailout".
How this shakes out - inflationary, deflationary, good/bad for Gold et al... I just have no idea at the moment.
Do not believe for ONE SECOND any of the planted propaganda that this is going to "work itself out", or "muddle through", whatever silly BS the folks that need to manipulate the masses come up with. Many of these bonds are going into default, and many of the non-G.O. bonds are going to end up settling for pennies on the $, and considering the costs of future borrowing, states like Cal and NY are particularly bad shape... given they cannot pay their debts now with surreally low interest rates... what do you think happens when they have to pay a rate commensurate with the risk? Are you listening U.S. Treasury Bond investors?
There is a significant political aspect here, too. California has 55 members in its Congressional delegation, with 40 of them Democrats. New York, the other cluster f**king disaster big state, has 31 members in its Congressional delegation, with 29, or 93%, Democrat. This is NOT A COINCIDENCE. The same lame-brained, nit-wit, jag-off believers in something-for-nothing, the Left, have destroyed their very seats of power - both New York and California are at the mercy of the Federal Government... if you look at the House of Reps WITHOUT THE NEW YORK AND CALIFORNIA representatives, the House is something like 70% Republican and 30% Democrat, and those non Cal & NY Dems (other than the completely out of their mind's Mass. Caucus) Dems are going to have a hard time voting for a Cal & NY bailout and remain employed as Representatives (Oh, and in 2012 out of 34 seats in Senate up for election, its 12 Republicans and 22 Dems running for re-election... the Dems have a better shot at holding a tiger by the tail than holding the Senate... EVEN IF Obama gets re-elected, and that is by no means assured, either).
It would appear to me that the individual State's financial crisis is here, with California, New York, Massachusetts, and Illinois (all very BLUE STATES) going up in mushroom clouds.