04/01/11 Stockholm, Sweden – Meredith Whitney, CEO of the Meredith Whitney Advisory Group, has been beating the drum for some time that state and local governments continue to spend far beyond their means. More recently, she added that this year hundreds of billions in US municipal bonds are likely to default.
Against this backdrop, JPMorgan Chase Chairman and CEO Jamie Dimon has now publicly declared that somewhere around 100 US municipalities are going to fail in renegotiating the terms of their bond payments. While he doesn’t expect the bankrupt local governments to “shatter America,” he’s clear that the downturn in the credit cycle still has plenty of casualties to grind out.
More details from Bloomberg:
“’I wouldn’t panic about what I’m about to say,’ Dimon, 55, said today at a U.S. Chamber of Commerce event in Washington. ‘ You’re going to see some municipalities not make it. I don’t think it’s going to shatter America, I just think it’s a part of the credit cycle.’
“Speculation about widespread municipal-bond defaults intensified in December when bank analyst Meredith Whitney predicted that ‘hundreds of billions’ of dollars of municipal bonds may default in 2011 amid pressure to balance budgets.
“JPMorgan, the second-biggest U.S. bank by assets, said in February its commercial bank’s municipal-debt holdings are diversified enough to handle a likely increase in defaults. The number of issuers that can’t manage debts may be about a hundred, Dimon said today.
“’It’s not going to be thousands,’ he said. ‘It’s going to be maybe a hundred. It’s going to be a small number’ out of roughly 14,000 municipalities.”
New York University professor and Roubini Global Economics chairman Nouriel Roubini had also remarked that US municipalities will default on roughly $100 billion of debt within the next five years. As Dimon expressed, “We’re starting to add up a whole bunch of things which are negative for America.”
You can read more details in Bloomberg’s coverage of how Dimon said one hundred municipalities in the US won’t make it out of debt.
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.View articles by Rocky Vega The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.
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