The Federal Government is, for the most part, under water in debt. However, it operates well, mainly due to it's prize sell-able item, Federal Bonds. As I blogged before, if Federal Bonds ever fall out of favor, its over.
Apparently the States do not have such a mechanism to maintain it's debt, as their debt isn't as in demand as people fleeing to Federal Bonds for safety. Two states are now publicly on the ropes needing assistance. Massachusetts asked for money under the same extraordinary terms the government is giving banks and Wall Street firms during this financial crisis. California has asked for 7 Billion dollar loan, or else it cannot pay for basic services. A county in Alabama cannot pay a 83 Million Dollar bond payment.
Really? The US government has 700 Billion dollars committed to financial companies. Congress has spoken to what is important, Wall Street, not the solvency of the states!
What is it going to be? Save the States? Save Wall Street? Save foreign investors? Save big USA businesses? Save people from losing their homes? Save the US dollar from collapse? Save the world from a Great Depression 2008?
If 700 billion dollar give away and allowing banks to have zero reserves didn't make the market jump on Friday, I'm not sure what will. Since it is "unreasonable" to ask to restore trust by restoring accounting to international standards.
Monday may be another critical day, as the US government will auction off 1.5 Trillion dollars of Freddie/Fannie debt.