June 18, 2010

FINANCIAL TIMES: Reality of America’s fiscal mess starting to bite.

Investors would do well to take note. In recent months, America’s fiscal mess has assumed a rather surreal air. On paper, the country’s federal-level deficit and debt numbers certainly look very scary. But in practical terms, the impact of those ever-swelling zeroes still seems distinctly abstract.

After all, so far the federal government has not been slashing spending; on the contrary, there was a stimulus bill last year. And, as my colleague John Plender pointed out this week, Treasury bond yields have been falling as investors flee the eurozone woes. As a result, those scary numbers still seem to be a problem primarily concocted in the world of cyber finance.

But there is one place where reality is already starting to bite in America and that is in terms of state finances.

That’s because states can’t print money, and thus can’t live in a cloud of denial, as our leaders in Washington, D.C. still do.

UPDATE: Coming next: $7 a gallon gas?

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