I'm not sure where state governments get their money but city/local
governments borrow money from big banks and other creditors much like
individuals and corporations. Then they can't make their payments. These
entities refuse to loan more money and these cities are in trouble, again not
unlike what we would go through if we maxed out our credit cards. Just ask
Stockton, CA or Scranton, PA and many other cities are at risk of filing for
bankruptcy. This, along with the student loan bubble, is about to burst.
Thankfully, Utah cities are generally avoiding this fate. As for state
governments, I don't think they can just print money like the feds can so
they are probably in the same boat. So if I was in California, look out. Your
cities are going belly under and the state is heading that direction to.
I'm not sure if the federal government, led by President, can stop the
bleeding or bail these cities/states out. "There will be blood" as the
saying goes. AUSTERITY-the new word for this generation.
If the state is a sovereign entity, how can it declare bankruptcy? Who is the
sovereign that can order that creditors forgive the state's debt? If the
federal govt, then does this not further weaken state independence from the
federal center (making the states really just provinces of a national govt)? Be
careful what you ask for.The states are suffering from ignoring the
very clear warnings which most had for decades. Do not pity them too much.