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Mindless deficit spending has a price, including "higher inflation, a weaker dollar and the eventual loss of America's AAA sovereign credit rating." It's just a matter of time, Gross warning: "Fear your head - fear your head."
Municipal Bond and Public Pension Default Risks
On 60 Minutes in late December, banking analyst Meredith Whitney predicted from 50 - 100 "significant" municipal bond defaults in 2011 (in cities, towns and counties, not states), totaling "hundreds of billions" of dollars.
The 2008 US record so far is $8.2 billion. Defaults at multiples of that total would greatly impact the economy.
Forecasting trouble, financial expert/investor safety advocate Martin Weiss believes:
(1) Rapidly sinking municipal bond prices "will suffer one of the greatest collapses of all time."
(2) It will affect other vulnerable bond markets, notably mortgage-backed securities and long-term Treasuries.
(3) When bond prices fall, interest rates rise, driving up borrowing costs for business, federal, state and local governments as well as consumer households.