We have the same problems as Europe

(Bloomberg) - Investors, spooked by bank analyst Meredith Whitney’s prediction of “hundreds of billions of dollars” of municipal defaults in 2011, started fleeing the market in record numbers, sending interest rates soaring, according to Craig Sheagren, the hospital’s chief financial officer. As bond buyers ran, JPMorgan Chase & Co. (JPM) and other underwriters stepped up with offers of loans, letting the institution bypass the public markets.

Even after Alabama’s Jefferson County became the biggest government bankruptcy in the nation’s history and some defaults surged, the annual average 10-year borrowing cost for top-rated states and local governments dropped to 2.37 percent Dec. 12 and remained there yesterday, according to a Municipal Market Advisors index. That was the lowest rate since the company began collecting the data in 2001.

Meredith was right. It is not her fault if counties are going bankrupt and municipalities cannot borrow.

Italy, Greece, Spain, Portugal, and Ireland have the same problem.

You cannot borrow if you are not generating the wealth to pay the interest on the loans.

The markets always win. Always.

More details in my The Peter Dag Portfolio , in Dag's Exclusive market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year by Timer Digest

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