In Ernest Hemingway's classic novel The Sun Also Rises, a piece of dialogue goes like this:
"How did you go bankrupt?"
"Two ways. Gradually, then suddenly."
That scenario is unfolding in many U.S. states and cities today. Municipalities have borrowed and spent for decades. A substantial number are going broke.
Despite signs of economic recovery, many parts of the nation's most populous states are feeling a hangover from the collapse of housing prices, prolonged high unemployment and resulting declines in revenue. They are confronting soaring demands for spending on public workers' pensions and retiree health care while slashing services, rolling back pay and laying off cops, firefighters and other workers.
USA Today, May 16
Consider the Golden State.
California is geographically beautiful and diverse. The weather is mostly wonderful.
It also "grows nearly half of the nation's fruits, vegetables and nuts. Agriculture generates approximately $37.5 billion a year." About 90% of U.S. wine production comes from California's vineyards.
The state is the home of "Silicon Valley" and the motion picture industry. Finance, insurance, trade, real estate and manufacturing are also sizeable parts of California's economy. California topped the list of states in the number of billionaires in 2011, according to Wikipedia.
If California was a country, it would have the world's eighth largest economy.
All of that said...
...USA Today reports that "These 10 California cities could be next in bankruptcy" -- the list includes Oakland, Fresno, and San Jose.
Oakland "has cut police and other services while struggling to stay solvent." Fresno has seen "a 25% reduction in the city workforce since 2009. Its credit rating was downgraded in 2012." San Jose is the nation's 10th largest city and the home of high-tech. But that's not what counts to Standard & Poor's. The agency "downgraded San Jose's credit rating in 2012 and branded it with a negative outlook."
Several other sizeable cities across the U.S. are also facing major money problems.
The flood of municipal bankruptcies coming this decade is going to be something to witness. ... When the crisis hits, everyone will talk about how "sudden" it is.
The Elliott Wave Theorist, March 2012