The Coming Local Government Credit Crunch

The Wall Street Journal reports:

Local and state governments face such peril in part because the federal government is about to saturate the market for U.S.-based debt -- including debt issued by municipalities -- as it props up failed financial institutions and distributes stimulus money. The federal government could overwhelm the credit markets. In the third quarter of 2008 alone, the amount of federal-government debt surged by 39%. This was "the largest quarterly growth rate recorded," the Federal Reserve recently reported.

It likely will get worse. Treasury debt held by investors around the world is slated to surge by 98% between now and 2013. That's overwhelming even in a growing market.