Bernanke is being asked whether the US faces a looming municipal bond crisis. He notes that municipalities are under great stress but says that they are incented to avoid default at all costs for fear of being shut out of markets in the future. They would be forced to make “hard choices” like raising taxes and cutting outlays to meet their debt obligations.
Bernanke says he has no intention to get involved in state and local finances and says there has not been a default on the state level in 160 years.
Bottom line, he is trying to avoid the implication that the Fed will bailout the states…
