Cash-strapped local governments are facing an "inflection point" that will force them into deciding between providing services and honoring debt obligations, financial analyst Meredith Whitney told CNBC.
"You haven't seen state and local governments cut to the degree they have. Now you reach a point where it's an inflection point: At what cost am I going to honor my pension obligations?", she said.
"How much am I going to cut into basic social services to honor obligations that I just can't commit for the long term?" she continued. "Precedents are being set now and you're going to see more and more cities adopt" cost-cutting measures.
It makes no sense to own municipal bonds at the current time. The entire sector will be damaged when the defaults start to intensify---on top of this interest rates, at some point for all bonds will start to climb.