It's obvious that a key base of President Obama's political strength comes from unions. He has across the board union support. Unions involved in the private sector and public sector unions.
In today's WSJ, Fred Siegel has an important article explaining how public sector employees gained their political strength. Once you understand this strength, and how it ties in with the current budget crises being faced by state and local governments across the country, it is easy to understand how some type of inflationary bailout of states and local governments via Fed money printing is a very likely "solution". The article is here.
But if the Federal Reserve will pursue this way outright there will be the not secondary effect to press treauries rates higher: if I could buy california municipal bonds with the assurance of the lender of last resort why would I have to buy the expensive treasuries? the effect - in a not long period - would be to make tresuries rate increasing to level the difference; and - it is for sure - would be a loss loss game for the Federal Reserve and for every american too much indebted state; the money - in the next year - it will probably be sought in unfunded liabilities of the pension funds binding federal deficit policies starting to stop further increases.
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