Wikinvest Wire

From bad to worse in California

Tuesday, December 02, 2008

Things are deteriorating rapidly in the Golden State and the band-aid budget solutions of just a few months ago are quickly revealing themselves to be wholly inadequate in dealing with what is now a major hemorrhaging in California's fiscal condition.

As reported in the LA Times, the gubernator went public yesterday, declaring a "fiscal emergency" and ordering legislators back to work in order to find a solution to the current cash-flow situation that would have the state running out of money in just a couple months.

The budget shortfall is now somewhere between $11 trillion billion and $28 trillion billion, depending upon how it is calculated, and, given the current trajectory of the state's housing market and economy, things are likely to get much worse before they get better.

Of course, they really have only one practical choice here - a bailout from Washington.

According to this Washington Post story, those wheels have already been set in motion with almost $200 billion of the upcoming Obama Administration stimulus package being requested by the states to help square their books.

This once again prompts the question, "Who's going to bail out Washington?"



RebbePete said...

Don'tcha mean 11-28 billion, not trillion?

Anyway, where I am in Maryland, things aren't much better. About a year ago, the governor called a special legislative session that levied a pile of new taxes on everyone. Now we're back running seriously in the red again.

jesse said...

Who's going to bail out Washington? You are.

Tim said...

Yes, lately I've become accustomed to writing "trillion" rather than "billion" - not there is any real distinction between the two words since the numbers are now unimaginably large.

Dan said...

Just wait till you grow accustomed to writing quadrillion. : O

I thought we were getting a sales tax hike that was supposed to pay for everything... what happened to that?

Anonymous said...

Hello Tim,

The answer to who bails out washington; is the printing press.

How much inflation on M0 do we need to get a more sustainable ratio of M0 to M3?

If done wrong the money will get blown on more junk from China. If done right then the situation shoudl stablize with a somewhat lower standard of living. I say somewhat because there are a lot of pricing phenomena in things like health care, manufacturing, transportation that have not worked themselves out yet.

If a big price of all this correction is that we get less junk imported from China, and its mostly junk, then we will be better off for it.

There are so many things that need to work themselves out. Wages, import levels, consumption exc. But the economic potential is there for really high production. In some ways the housing bubble showed we can build lots and lots of houses. We can also produce lots of nice cars exc.

Somehow in all of this we need to figure out a way to market stuff in China. Heck, maybe organic milk that doesn't poison your child.

I realize there is some level of malinvestment, however not sure all the excess housing stock is really the problem.


Anonymous said...

I guess what I am saying is that we have some malinvestment but we are not seeing actual shortages.

The only places seeing actual physical shortages have other structural problems.

The big problem we have now is the banks are over leveraged so this is primarily a pricing function.

We seem to have plenty of:

Water... maybe
War stuff

So, lots of stuff is going OK. Some of that is suplemented by imports but its not impossible for us to adjust.

Vespucian said...

Too bad Sacramento can't just print what it needs. Perhaps some "Imperial Government of Norton" dollars would suffice?

Anonymous said...

Secession Now!

Anonymous said...

What, even with a 10% sales tax California is untold trillion or billion in the whole? This budget problem comes up every few years. When are the fools in Sacramento going to realize that you have to save for a raining day?

Arnold tried to start dealing with this a few years ago, but after the unions killed his approval rating he just rubber stamps the red ink.

Nick said...

Politicians always spend more than the government organization takes in, and California is no exception. If they succeed in raising taxes, not only will it not help lower the deficit, but it'll encourage more out-of-control spending.

I applaud the few rational people in California's legislature who are holding the line and refusing to submit to higher taxes, no matter what the other bribes and half-hearted spending reductions are included in the "compromise" packages drafted entirely by the majority party. As Pete noticed in the first response, higher taxes never helps. I say no more taxes or fees, period; fix it by reducing spending (hopefully permanently) or the voters can find someone else who can.

... of course, I also advocated no bailouts of corrupt insiders and reckless speculators who caused the housing bubble, and look where we are now...

Anonymous said...

No doubt California politicians are as weaselish as anywhere else, but you can't talk about the state's endless financial problems without mentioning the role of referenda. They've burdened the state with numerous, often mutually contradictory obligations. And they've evolved away from their democratic (small 'd') origins into a tool that any rich crank or scumbag can exploit, as long as he can pay for a brigade of petition-gatherers.
-- sglover

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