For a few days now, the powers that be in Sacramento have been trumpeting the low interest rates that the market gave California for its most recent issue of short-term debt. For people like Governor Jerry Brown, the willingness of investors to lend the state money at low interest is a sign that our habitually broken finances are on the mend. We beg to differ, of course: in our view, the favorable interest rates reflect the low-risk nature of a nine-month loan and the anxiety being created by the sovereign debt crisis in Europe. (We also think the Governor is seizing on any pretext for higher government spending, but that's another discussion.) And it looks like some people agree with us: the LA Times reports that investors' response to a new issue of longer-term municipal bonds has been tepid.
pension crisis on the horizon, and Sacramento's decision to balance its budget on the backs of the cities, can you blame them? We have a hard time believing that many municipal bonds issued in the Golden State will be paid with interest in 10 years' time, let alone 30 years' time.