"Massachusetts' second [short-term debt] postponement capsules the current climate in the credit markets. Massachusetts is not a high-risk borrower. Many lenders have plenty of money. But little activity is occurring and borrowing rates remain high, which points to a pervasive lack of confidence by lenders," Wang said. "Massachusetts has cash through January 2008 and can also access a 'rainy day' fund with its legislature's approval, but the state's delay underscores how constrained credit market conditions are affecting both states and the broader economy."

Wang said he's hopeful that the Fed's new Commercial Paper Funding Facility, combined with the U.S. Treasury's purchase of distressed and bad debt, will "at least stop short-term borrowing rates from rising," and free up more private capital for credit.

"This is a crisis with both short-term and long-term tasks or battles. With the Fed's commercial paper guarantee, if credit markets begin to loosen and states like Massachusetts and California can access short-term loans, today may represent a victory," Wang said. "We'll see."

Credit Market & Economic Analysis: Massachusetts joins California as states hampered accessing short-term loans, due to the financial crisis. Moreover, these are not mono-industry, small states. These are defacto large countries in terms of GDP and revenue stream diversity, which speaks to the scope and reach of the financial crisis. Further, economist Wang said that given the numerous unknowns, it's not meaningful to state 'where we are in the financial crisis.' However, several steps have been taken toward systemic health, he added, and the states' ability to access short-term credit and maintain operations would represent another step.