New Jersey Municipal Debt and the credit crunch

by: Hopeful

Thu Oct 09, 2008 at 01:43:38 AM EDT

New Jersey municipal - 5 year: 2.09%  Now: 3.57%
U.S. Treasury            - 5 year: 2.76%  Now: 0.59%
U.S. Government       - 5 year: 3.11%  Now: 1.55%
Money Market           - 5 year: 3.26%  Now: 2.76%

Over the last five years -- more or less normal times -- money markets were considered very safe and paid low interest rates.  You can see that the federal government, being super-safe, paid a bit less in interest than big corporations (the regular money market). Local governments in New Jersey paid even less interest, since the interest has the advantage of being free of U.S. income tax.    

Now look at the current "7-day" rates: The ultrasafe U.S. Treasury is paying almost nothing in interest; it's the only place to put your mney and be completely sure you'll get it back. Even the corporations are still paying less than the 5-year average. But New Jersey towns (and everyone else's, by the way) are suddenly paying a lot more. Something is seriously wrong. I don't know exactly what, although this Wall Street Journal article refers to a troubled Irish bank that's affecting U.S. Municipal short-term debt.  In any case, this is going to affect us through our local government -- and if there's one thing New Jersey has a lot of, it's local governments.