And Were Living Here In Harrisburg

The much maligned capital of Pennsylvania could be the Keystone State's keystone to wrecking the municipal bond market.  Tyler Durden:

A week ago we asked whether Harrisburg is a "doomed city." Today, the city itself answered the question, after passing a 2010 budget which excludes debt payments. In essence, the city anticipates defaulting. The catalyst will be a $2 million missed interest payment on an incinerator due March 1. As Reuters points out laconically, this is "a rarity for a municipal bond issuer." The outcome: official muni default. "Asked whether the city may file Chapter 9 bankruptcy as a way to get its debts under control, [City controller] Miller said that was a "possibility."Will this be the catalyst that sets the muni bond market ablaze? Remember that March is when Quantitative Easing officially ends. And everyone knows what is happening in Europe. Will the next 20 days set the preamble for the next major leg down in the ongoing Great Recession?

And you're kidding yourself if you think Harrisburg and Colorado Springs are the only cities in America looking as massive budget holes over the next two years. Harrisburg's next payment is due on March 1.  Many other cities and counties are going to be facing similar hard choices over 2010 and 2011.  Birmingham/Jefferson County, Alabama was just the beginning.  And as conditions get worse, those teetering on the edge will go over.

It's going to be a long, ugly road ahead.