State Bonds A Bad Place To Park Savings?

State Bonds A Bad Place To Park Savings?

Growing instability in the state economic markets--not to mention the inability to print cash to pay bills--puts states in a bad place in about paying debts.

Budgets that will not balance.

Accounting that masks debt.

Armies of retired public workers counting on benefits that are proving harder and harder to pay.

These quotes from the New York Times sound less like a litany of woe and disaster and more like stuff you'd read out of the headlines--but it all adds up to one truly horrifying possibility--states are looking at a debt crisis the likes of which they've never seen before, and they're trying their best to avert it. New Hampshire's State Supreme Court, just for one example, forced the state government to return a hundred and ten million dollars it took from a medical malpractice insurance pool.

What does this mean? Pretty simple--state bond issues are not going to be a place you'll want to park your savings any time soon. Oh, sure--they'll be promising terrific rates to get people in the door. They'll have no choice but to do just that. But when it comes time to pay the bonds off...will they declare another "emergency" and see their promises evaporate?

Now, this isn't necessarily certain. It's possible that they'll promise high rates and pay out. But leaving your savings to chance is a tricky prospect. You may want to look at government bonds the same way you look at stocks, and that's going to be something of a mindbender for a lot of people.

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Comments

  • Sol Nasisi

    April 02, 2010

    Most muni experts are not predicting high defaults despite the pronouncements of doom. Even California for all of its budget woes was never in danger of default. Tom Doe from MMA discusses this in an interview we did with him last month:

    http://www.bestcashcow.com/cash_equivalents/munis.html

    Also, muni yields have been down in the past year as investors have piled into them in record numbers. Investors have been looking for safety as well as the tax advantages. The bigger threat to investors is whether prices can continue to stay high (rates low) and issues of liquidity.

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