Encima Global president — and economist — David Malpass has some incisive slides up on the firm’s website that relate well to municipal finance and “too big to fail.”
Slide #16 shows the growth in state and local government spending as a percentage of GDP. It’s gone up in recent years to near-1970s levels.
Slides #18 and #19 illustrate how cheaply municipalities have been able to borrow over the past year, despite historic economic and financial crises that should have shown how dependent states and local governments were on bubble-era revenues.
Record-low borrowing rates for state and city governments make no rational sense — except in a world of zero-percent interest rates and an expectation of bailouts on demand, both of which distort normal market signals.
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