I'm new here so I'm not sure if this type of question is appropriate on this site.

I live in the EU (Italy) and I'm quite concerned (probably not the only one now in EU) about the possibility of some country (maybe mine GDP/DEBT 120%) to go into default or very close to it.

Before asking this question I tried to sort it out by myself reading these very interesting q/a:

But I could not come to an answer. In Italy is the 1st time we have one currency for all EU states. I think in the past when we had Lira the government would avoid default by simply devaluating the currency, but I suppose one EU country can't decide on its own to do devaluate a currency like Euro that is common to all other countries.

Here Frazell Thomas says: "A similar reality happens in the United States with some level of regularity with state and municipal debt being considered riskier than Federal debt (it isn't uncommon for cities to default)."

But do you know about a US state risking to go default now or in the past? I'm very confused do US single states like IOWA have debt and emits obligations on their own like Italy does in EU?

Oh, and just another little thing I would like to know, is Dollar a fiat currency too like the Euro?

Thanks in advance for any answer.

  • Answer to your final question: The US Dollar is a fiat currency.
    – JohnFx
    Commented Dec 3, 2010 at 21:33
  • @Joel Spolsky, thanks for the adjustments. I really thought it was UE (United Europe), it's probably what I would like to see one day, but it's true it's still just an European Union. :)) Commented Dec 4, 2010 at 18:45
  • The title is a bit weird because US states can and have defaulted.
    – poolie
    Commented Oct 10, 2011 at 23:27
  • Tangential to your question, but we don’t have a common currency for all EU states. Cf. iglobalexports.com/internationalblog/wp-content/uploads/2012/09/… for a quick overview. Commented Mar 19, 2014 at 21:51

3 Answers 3


But do you know about a US state risking to go default now or in the past?

In 1847 four states - Mississippi, Arkansas, Michigan, and Florida - failed to pay all or some of their debts. All of these states had issued debt to invest in banks. From the detailed source listed below: "...it should be remembered that all cases of state debt repudiation, as contrasted with mere default, involved banks." Jackson had killed the federal central bank 10 years earlier and the states were trying to create their own inflationary central banks. Six other states delayed debt payments from three to six years (source, page 103, this source has more details). This is the only case I know of where US states defaulted. US cities default more frequently.

I'm very confused do US single states like IOWA have debt and emits obligations on their own like Italy does in EU?

Yes. Individual states can issue their own bonds.

Oh, and just another little thing I would like to know, is Dollar a fiat currency too like the Euro?

Yes, the US dollar is a fiat currency. I think the better question is: "Is there any currency that is not a fiat currency?"

  • I'm not terribly familiar with 1840's US financial history, but I'm pretty sure with the exception of Mississippi, all of the states eventually came to terms with their creditors. IIRC, Mississippi was sued in the 80's or 90's by the heirs of some British bondholders. Commented Dec 6, 2010 at 13:43
  • I added another link to a great article that details the history of the state defaults and repudiation. No, the four states listed above failed to pay back the debt - it was repudiated.
    – Muro
    Commented Dec 7, 2010 at 4:23
  • That's a great resource, thanks a million. It is fascinating how similar the origins of the 1847 issue are to the mortgage debacle! Commented Dec 8, 2010 at 0:41
  • 1
    @Muro Of course, that was prior to the establishment of The Federal Reserve Bank in 1913. Events like the ones you described, in those dark days of the 1840's are MUCH less likely, thanks to the noble, tireless and commendable efforts of the Governors of The Federal Reserve Bank of the United States of America. Commented Feb 5, 2012 at 13:42
  • 1
    Dark days? How do you know those days were dark? Why are investors who loan money to governments not allowed to bear the risk of default? Yes...a US government default on its debt is much less likely to happen when the FED can print money to buy said debt. What about state debt though?
    – Muro
    Commented Feb 6, 2012 at 17:48

US or EU states are sovereigns which cannot go bankrupt. US states have defaulted in the 1840's, but in most of those cases creditors were eventually repaid in full. (I'm not 100% sure, but I believe that Indiana was an exception with regard to costs incurred building a canal system)

The best modern example of a true near-default was New York City in the late 1970's. Although New York City isn't a state, the size and scope of its finances is greater than many US states.

What happened then in a nutshell:

  • The hapless city administration begged for a bailout; the Feds and eventually New York State said no.
  • The city became insolvent and was nearly unable to meet it's obligations.
  • The Governor (Gov. Carey) devised a plan where the NYC teacher's union provided an infusion of $150M from its pension to keep the city afloat.
  • The State imposed a fiscal control board that approved all city spending for many years in exchange for a restructuring of debt guaranteed by the NY State government.

Basically, a default of a major state or a city like NYC where creditors took major losses would rock the financial markets and make it difficult for all states to obtain both short and long term financing at reasonable rates. That's why these entities get bailed out -- if Greece or California really collapse, it will likely create a domino effect that will have wide reaching effects.


But do you know about a US state risking to go default now or in the past?

Ultimately, a US state could go into default. However, I doubt that such a scenario would be allowed to transpire.

This seems to happen to California with some regularity. That is, risking default. What would happen is not quite well known:

"There is no provision for a state to go bankrupt," Kyser said. "I don't think anyone really knows what will happen or even if the state will go into receivership if it does default. I can tell you this, officials are looking at all the (current) laws." (source)

I believe that the answer to your question is that it could happen, but likely would not be allowed to occur. The nature of the EU and US are quite different. The individual states forming the US are not separate nations. For better or for worse, the US is a stronger federation than the EU. (Something that is lamented at times when the Feds mess with the purview of the locals.)

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