The city of Chicago and the state of Illinois are a combined $130 billion or so underfunded, according to Mike "Mish" Shedlock of Sitka Pacific Capital Management.
"The whole system is insolvent," he told CNBC's "Squawk on the Street" on Tuesday.
The most pressing financial crisis is at the Chicago Board of Education, which is looking to the city and state for help. But the state is facing a $9 billion budget deficit this fiscal year, so Shedlock said no help can be expected.
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"What happens is that the Chicago Board of Education is going to default because they need to come up with money right here, right now," he said.
"It is not going to be able to make that payment unless the city of Chicago or the state of Illinois comes up with it. Good luck on the state of Illinois."