According to the Boston Globe,
Traditional Wall Street investors have taken note. Iraq is … nearly on par with the State of California, according to Bloomberg statistics on credit default swaps, which are considered a raw indicator of default risk.
“Compared to California, I’d rather bet on Iraq,’’ Daher said. “Iraq is a country where there are still bombs going off and people getting murdered, but they are less indebted than the United States. California is likely to have more demands on its resources, and there is no miracle where California is going to have more revenue coming out of the sky. Iraq has prospects for tremendously higher revenues, if they can manage to get their act halfway together, which they seem to be doing.’’
One more bit of evidence of the waning luster of the Golden State. I’ll be very curious to see how the standings change once the latest round of stimulus $$s runs out…
It’s been clear for quite some time that California’s an economic basket-case, but this article really brought home the subjective reality of it. The descent from first-world privilege to third-world destitution ain’t a pretty prospect…
“The outlook for next year and the year after is worse,” says veteran California observer and journalist Peter Schrag, over a BLT lunch at a casual-but-chic cafe in the Berkeley foothills. “The stimulus money goes away. The tax increases [passed in February 2009 after weeks of acrimonious debate] expire. If we’re up shit creek now, we’re going to be further up shit creek two years from now.” Since the state, unlike localities, cannot declare bankruptcy, if its tax revenues continue to wilt it will have no choice but to dramatically scale back its spending on big-ticket items such as education, healthcare and prisons.
So the State of California is officially broke. According to the Raw Story, after the legislature and the governor again failed to reach a compromise bridging the 40+ billion dollar budget gap, the government is officially out of money. Effective immediately, the state will not disburse any funds for college scholarship grants, county social services, and the highway patrol. Furthermore, Californians will not receive their state tax returns until this is resolved. According to sify.com, if this is not resolved by the end of the month the government will be completely out of cash. As a result of the immediate cuts, there’s an unprecidented level of county-level push-back, as it is the counties who administer the social services. The Sacramento Bee reports that county governments, which collect property taxes for the State, are threatening to withhold funds until the State agrees to meet its (now unfunded) obligations to them. One has to wonder, what with California’s unemployment rate already at 9.3%, what that number will be when all of the low paid human services peons (I’m one in VT) are out of work. In Bakersfield, CA, budget cuts could potentially eliminate 1100 of the 1500 jobs in their county’s department of Human Services. Never mind what will happen when all of the folks who’ve become dependent on that system suddenly stop receiving services.
One aspect of this situation that I find especially interesting is the fact that the State has threatened to issue IOUs for tax returns, and has negotiated with banks, trying to convince them to accept the IOUs as deposits. In essence, the broke government of CA is in such dire straits that they don’t have the luxury of waiting for the inflation-funded Federal bailout to bring them back to solvency. As such, they’re trying to do an end run around the Federal money monopoly and directly inflate themselves out of their predicament. California’s always been a step or two ahead of the rest of America; if things continue as they have been, this might become a common occurrence.