Monday, June 27, 2011

New Jersey Faces Possible Cash Crunch in Next Few Weeks

WSJ is reporting that the State of New Jersey has been negotiating for temporary bank loans.


UPDATE:According to WSJ:

New Jersey officials have been negotiating a temporary bank loan of as much as $2.25 billion to plug a cash shortfall, according to people familiar with the matter...Terms of the loan, also known as a credit line, haven't been finalized and negotiations could fall apart, according to the people familiar with the matter...One person familiar with some proposed terms of the possible loan said the interest rate is relatively low, but it could shoot as high as 9% if the state didn't pay back the bank in six months.
NJ is likely to get this loan, but the cracking sound you hear is the state and municipal markets on the edge of cracking. Unless there is huge price inflation to bailout many states and municipalities, the market state and muni bond markets breaks wide to the downside, sooner rather than later.

This is not the time to own any muni bonds. If panic ensues at some point, even solid munis will get hit, and you will have to hold to maturity.

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