California on the Brink

[classicman]

Armageddon. Apocalypse. Disaster: These are the words being used to describe California's staggering $24 billion budget deficit. With a midnight deadline to balance the budget, state lawmakers are facing a daunting task: Find a way to bridge the gap or start issuing $3 billion in IOUs this week to cover the bills.

Almost every state is suffering from the effects of the recession, but not every state accounts for 12 percent of the national gross domestic product. According to AP, if California goes down, so goes the nation: California's annual $1.7 trillion economy is the world's eighth-largest economy and provides a significant chunk of tax revenue for the government; California alone funds many social programs for the entire nation.

Like the Big Three automakers, California may be "too big to fail." If the state implodes, the ripple effect could slow the entire nation's recovery from the recession. Burt P. Flickinger, a retail consultant, tells AP:

"California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly."

How did California dig itself such a huge hole? The recession certainly didn't help, but Time's Kevin O'Leary writes that California's financial troubles can be traced back to the passage of Proposition 13 in 1978. An antitax measure, Prop 13 makes it extremely difficult to raise taxes or pass a budget unless a 2/3 majority in both state houses agree — a virtually impossible task. California Rep. Zoe Lofgren tells Politico:

"If we [in Congress] had to do what the California legislature does, we would never send a bill to the president of the United States,” she said.

If the political wrangling over the budget isn't resolved by midnight tonight, Californians will be feeling the pain on every level, big and small. Just a few of the proposed spending cuts:

— State employees will be forced to take another day of unpaid leave a month, in addition to the two days leave they were forced to take starting in December. (NYT)

— Funding for the Bureau of Narcotics Enforcement will be slashed by $20 million. The "little-known unit" has played a key role in several of the state's high-profile cases: The bureau's agents helped arrest Scott Petersen for the murder of his wife and unborn child, and their investigation led to charges in Anna Nicole Smith's overdose death. (AP)

— 80 percent of state parks would be closed, 25 in the Bay Area alone, including several beaches along the peninsula. Park visitors spend an estimated $2.6 billion a year in and near state parks, but closing the parks would save only .26 percent of the $24 billion deficit. (SF Chronicle)

— Education funding would be reduced by $5.3 billion. School districts have already laid off 30,000 employees. Class sizes are expected to surge from 20 to 30 students and many after school programs, arts and music classes will be cut. A national education survey conducted this year ranked California 47th in per-student spending. (AP)

— Gov. Schwarzenegger is proposing to eliminate the state's $1.3 billion welfare program. Frank Mecca, the head of the County Welfare Directors Association of California, tells Time, "California could become the only state in the First World without subsistence benefits for poor children."

So far, the government is using a "wait and see" approach to California, or as a recent Politico headline stated more bluntly — "Washington to California: Drop dead." Earlier this month, White House spokesman Robert Gibbs said that the administration would "monitor" the situation, but that California's "budgetary problem unfortunately is one that they're going to have to solve."

I guess that since CA is in the bag there is no reason to bail them out. This is a 2fer for the administration. They get to "evict" another R governor and they still keep the massive D votes for everything else. I wonder if it were a swing state or one that Obama lost closely in the last election ... would they be more apt to help that state out? Just thinkin...

Aside from that there are other issues for the Administration to consider. They cannot set the president of bailing states out because that is a slippery slope issue which would jeopardize whatever recovery the country is in, if any. Of course we also can't add any more to the already too much debt we have.

[Happy Monkey]

Why was the Bureau of Narcotics Enforcement involved in the Scott Petersen case?

[sugarpop]

Arnold supported the stimulus and other things Obama has done, so why on earth would Obama want to "evict" him? That is just ridiculous. I think the reason they are using that approach is because it would be very hard to bail them out. America has "bailout fatigue," even though we needed to do it, and we will still need to do more. Just look at the problem they are having trying to get something done about health care? And that is a HUGE problem that is only going to get much, much worse if nothing is done. Can you imagine the outcry if they started bailing out states? Sarah Palin has already been on the road talking about it, stirring people up.

[slang]

Originally Posted by California on the Brink

.......Like the Big Three automakers, California may be "too big to fail." ....

Or we may find that California is "too big to keep".

What would we expect the outcome to be if we bailed Cali out now? With what we've seen in the past 8 months or so, we'd expect to bail them out again with a similar sized package in 3 to 6 months. And then possibly in another 3 to 6 months after that.

Why not have Bernanke hire a million helicopters to drop 50 trillion freshly printed bills to everyone that might need them?

Where does all this stop? California is clearly "too big [of a burden] to keep". Just as "too big to keep" as the federal government.

Let the dominoes fall. They are going to do so whether we bail them out now, next week, next month or never.

[sugarpop]

HA! California is too important NOT to keep. Did you not see this part?...
California's annual $1.7 trillion economy is the world's eighth-largest economy and provides a significant chunk of tax revenue for the government; California alone funds many social programs for the entire nation.
...or were simply ignoring it?

[sugarpop]

Oh, and that 8th largest economy part, that is in the entire world, not the United States.

[slang]

Originally Posted by sugarpop

HA! California is too important NOT to keep. Did you not see this part?...
California's annual $1.7 trillion economy is the world's eighth-largest economy and provides a significant chunk of tax revenue for the government; California alone funds many social programs for the entire nation.
...or were simply ignoring it?

No, I'm not ignoring the Californian $1.7 trillion economy, I'm annoyed at the whole idea that they are so big and productive....yet a $25 billion deficit will bring them to a crash.

Not very sustainable now, are they?

Originally Posted by sugarpop

Oh, and that 8th largest economy part, that is in the entire world, not the United States.

Should I somehow be more impressed that the 8th largest economy in the entire world is in collapse over $25 billion? Have them ask China for a loan. Maybe China will be impressed that such a BIG RICH PROGRESSIVE state is on it's knees for such a small sum.

Let them fail. Let them fail. Let them fail.

[sugarpop]

Wow. I am just amazed at how some people seem to want this country to go down.

[Perry Winkle]

Originally Posted by sugarpop

Wow. I am just amazed at how some people seem to want this country to go down.

"Let" does not indicate desire. There are pragmatic benefits to letting the inevitable happen and then rebuilding.

Bailouts reward poor performance. Rewarding failure is the road to ruin, as we're now demonstrating spectacularly.

[classicman]

GOLD STAR for Perry!

[TheMercenary]

I want them to go bankrupt and issue IOU's. Just to show that their socialist experiment failed.

[Urbane Guerrilla]

Originally Posted by sugarpop

Wow. I am just amazed at how some people seem to want this country to go down.

We don't, Sugarpop -- but that you hold this view of it tells me your thinking is by no means as unchained from hard leftism as you've in the past claimed.

Google on the phrase "creative destruction" and its economic results for a bit. Not altogether a bad thing, is it?

The only thing that's "going down" is the immense and costly establishment that is Big Government, which must not be confused with "this country." Small Government is our salvation, governmentwise. Knowing this is why I'm a libertarian, and not getting this is why you're not a libertarian. Yet. (I do think your every post shows your profound and wide-ranging ignorance, though. You're a leftist through not knowing any better. So far, anyway. I hope the things you may discover both here and in living adult life for a few years will fix it.)

We mean to recover the United States from its present socialist aberration. We don't know how many years it will take to repair the damage Obama and the Democrats are plunging madly to accomplish before the nation returns to its senses.

[xoxoxoBruce]

Poor California, they are going to go bust just like New York City did. Oh, wait, NYC survived, didn't they.

How much of that $1.7 trillion is Chinese crap passing through to walmart?
How much of that budget is spent supporting and catering to illegals?
When the income drops, ya gotta stop spending... duh.

Where's San Andreas when you need 'em?

[slang]

Originally Posted by sugarpop

Wow. I am just amazed at how some people seem to want this country to go down.

They will never change those stupid policies that are causing their problems if we bail them out now...and then 6 months from now... and then again.

There will be pain, there will be blood but they will rebuild more sensibly.

[snarky]Oh, and[/snarky]......looks like someone got handed their ass in a plastic bag for this argument, eh?

Originally Posted by Perry Winkle

Rewarding failure is the road to ruin, as we're now demonstrating spectacularly.

This is not something that I'd expect to see here at the cellar but it sure is nice to see.

Originally Posted by TheMercenary

I want them to go bankrupt and issue IOU's. Just to show that their socialist experiment failed.

Yes, there will be pain for all of us because of this collapse. It's likely going to affect all of us not just folks out west.

Socialism. Watch it fail. Learn from failure.

Originally Posted by Urbane Guerrilla

The only thing that's "going down" is the immense and costly establishment that is Big Government, which must not be confused with "this country."

That's a good line UG. The US is not the government.....it's people. People like us. Gov't is not the answer to all. We have let this government run wild because we've been comfortable. That is likely to change soon if it hasn't already.

I'm just as guilty or maybe even moreso than the normal citizen. We need more localized control and more involvement. Maybe that would bring us back to reality.

Originally Posted by xoxoxoBruce

How much of that budget is spent supporting and catering to illegals?

When the income drops, ya gotta stop spending... duh.

Where's San Andreas when you need 'em?

So many good comments here!

Maybe it's better for me not to comment. Very good thoughts Bruce.

[TheMercenary]

Let them move to total anarchy. I would relish it.