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The Greek fiscal crisis is going to come to the United States next year via the vulnerable state governments of (at least) California, Michigan and New York. Look for these states to descend once more on Washington DC with their tin cups seeking additional federal subsidies, disguised as stimulus payments. But…with Republicans in control of both Houses (bet on it) they will meet a frosty reception on Capitol Hill. While Obama will try to pass the subsidies, the GOP will turn them down. The American people – from the other 47 states – will ask why they should reward state irresponsibility with federal dollars.
Faced with a cutoff of additional federal aid, these state legislatures will be unable to balance their budgets and bond buyers will back off their paper. Ratings agencies will downgrade their bonds to junk status and bankruptcy will ensue.
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