The U.S. government will face pressure to bail out struggling states in the next 12 months, said Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

“People will think the federal government will bail these states out,” Whitney, 40, the founder of Meredith Whitney Advisory Group Inc., said in an interview on Bloomberg Television’s “In the Loop.” “It’s going to be an incredibly divisive issue.”

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate • State Government

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