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December 20th, 2010 11:45 pm
Debt Crisis Could Bankrupt Over 100 American Cities in 2011
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Yes, you read that headline correctly. The day of reckoning for spendthrift states and localities is on the way according to Meredith Whitney, a research analyst who accurately predicted the global credit crunch. In a startling piece in the UK Guardian, Whitney predicts that the number of sizable defaults to come in the next year could hit the century mark. The record isn’t pretty:

Detroit is cutting police, lighting, road repairs and cleaning services affecting as much as 20% of the population. The city, which has been on the skids for almost two decades with the decline of the US auto industry, does not generate enough wealth to maintain services for its 900,000 inhabitants.

The nearby state of Illinois has spent twice as much money as it has collected and is about six months behind on creditor payments. The University of Illinois alone is owed $400m, the CBS programme said. The state has a 21% chances of default, more than any other, according to CMA Datavision, a derivatives information provider.

California has raised state university tuition fees by 32%. Arizona has sold its state capitol and supreme court buildings to investors, and leases them back.

Potential defaults could also hit Florida, whose booming real estate industry burst two years ago, said Guy J. Benstead, a partner at Cedar Ridge Partners in San Francisco. “We are not out of the woods by any stretch yet,” he said.

Indeed we’re not. And don’t expect to see a robust private sector recovery as municipal governments crumble throughout the nation.

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