Wikinvest Wire

The California IOUs are coming...

Tuesday, June 30, 2009

We're back in California for a couple of days and, having caught a few minutes of the local news from Sacramento a short time ago, there appears to be little progress being made in the effort to avoid state issuance of IOUs in the days ahead.

The local paper carries news that the last day of the fiscal year should be quite an interesting one in the state capital, with each passing hour the odds increasing that the IOU man cometh.

Both houses likely will be in session all day and into the evening, but look for the real action at the negotiating table in the Governor's Office.

A key issue is $3.3 billion in budget savings that have to be approved by midnight -- in the current fiscal year -- or will be lost forever. Democrats are pushing the cuts to schools and redevelopment agencies to be approved by midnight, but the GOP and the governor want a full package before signing off.

The 1992 version of this melodrama ended badly, with drunken shouting, a fistfight, and a mysteriously stopped clock in the Assembly. Ultimately, the production ran all summer, with IOUs, court fights and rock-bottom performance ratings for politicians of all stripes.
Maybe someone will do the state a favor and roll a hand-grenade into the governor's office and a new group of "leaders" can begin the budget process anew.

Too harsh? Probably.

But, it seems clear that nearly all lawmakers in California are hopelessly out of touch with reality these days, many of them likely viewing the recent economic downturn as being just a temporary setback in what is seen as a birthright of ever-rising real estate prices, the absence of which makes the state, basically, ungovernable.

The idea that an Obama bailout might also materialize, despite recent assurances to the contrary, is no doubt making the sense of urgency a bit less than it might otherwise be.

The San Francisco Chronicle files this report of no progress being made in the stalemate.
Despite a deadline looming tonight, Gov. Arnold Schwarzenegger and the Legislature were at a loss Monday over how to close the state's massive deficit, and there were no signs a compromise would be reached soon.

If no plan is adopted by 12:01 a.m. Wednesday, the state plans to issue IOUs to contractors, vendors, local governments and taxpayers expecting refunds beginning Thursday. The governor plans to force 220,000 state workers to take a third unpaid day off beginning in July; and the state will forfeit more than $3 billion in budget savings through cuts to education that had to be made in the fiscal year ending today.

Before the Legislature adjourned late Monday, Democratic leaders had scrambled to pass a plan to solve the impending insolvency of the Golden State, but the governor fired back, insisting he would not support their budget bills because they included taxes and not enough spending reductions to close the $24.3 billion deficit through June 2010.

"I will veto any majority-vote tax increase bill that punishes taxpayers for Sacramento's failure to live within its means," Schwarzenegger said Monday.
Since the state has had to issue IOUs before (during the 1990s housing bust, by no small coincidence), it seems unlikely that the embarrassment of having to do so again will be any deterrent this time around.

AddThis Social Bookmark Button


Nick said...

At this point, the only people I'd spare from the hand-grenade treatment are the legislators resisting tax increases, since that's what the people obviously want, per the ballot initiatives which were all defeated. The Governator is one of the good guys, though, so no HG in the governor's office, please.

Unfortunately, it's still got probably a couple of months to go before state workers start getting IOU's, which is when real pressure might start building on the f-tards to actually write a budget within the state's means. Unlike the 1990's, there's currently a strong dis-incentive for banks to give out interest-free loans on badly-rated collateral (eg: state IOU's from fiscally retarded California), so hopefully nobody will take them. California's scum legislators didn't feel much pressure last time, cause banks were effectively letting people exchange them for cash; hopefully starting tomorrow it will be a much different story.

It might be morally repugnant, but I think I'd probably smile (and feel guilty about it) if Karen Bass eventually got dragged out into the street and beat to death by the people of California for treasonous betrayal in a grass-roots uprising against the flag-bearer for (if not the source of) the problem. Morbid, immoral, and wrong, certainly; but in terms of helping the state, probably one of the most beneficial things which could happen.

Dan said...

It would be really convenient to have a natural disaster in California during this period.

Dan said...

Tim, does blogspot have any plug-ins for linking to social networking sites (FaceBook, Digg, etc)? If so, would you be willing to use them? They could increase your traffic, and possibly your notoriety quite a bit. : )

Tim said...

I added the Bookmark thingy to this post and will start including it from now on - it gets you to all the social sites with a single click.

Anonymous said...

The grenade comment is regrettable. It really sets your work down quite a few notches.

I live in California, and think the Governor has had a golden opportunity to get out and tell voters what is needed to repair the situation. But he is much too timid. I do not know why.

The state will rebound from this mess. But will the government change things so this doesn't happen again? Maybe. After the next census.

Tim said...

The grenade comment was not meant to be taken literally and was a fairly common joke during my working years, applicable any time a bunch of bigwigs would gather in the same room.

If someone actually does roll a hand grenade into the governor's office, then that would be regrettable.

Anonymous said...

Unfortunately what happens in California does not stay there; it spreads across the country, like a plague and takes Vegas with it! Unfortunately this time the eight largest economies will take the whole country down the tubes with it. It looks more and more that Obama will be a one termer! I was hoping for better! Also to the person that says this State needs a natural disaster, I hope was only joking, because the economic demise will become a tsunami much quicker. Mish was right when he stated Bernake and Paulson should be indicted. The only person that is left making sense is Ron Paul.
The governator will stand to his promise of no new taxes. Think about it, he will have a much better legacy in history, than the bubble makers above. All you have to do to survive is ride the bubbles and get out before they burst. Two thoughts before I close, it will get worse before it gets worse and everything in this Country is a Ponzi scheme. Scary isn't it. I'm glad I got into green energy five years ago!


King of the Paupers said...

Jct: There’s nothing wrong with small denomination California State IOUs if I or anyone else can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes and which everyone accepted as useful currency. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at
Too bad California State IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California State IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.

Lou said...

This just in:
In addition to IOU's, California will also offer the option of getting paid in fresh produce. Choices will include red tomatoes, avocados, 5-lb bags of oranges and several Napa Valley wine options.

  © Blogger template Newspaper by 2008

Back to TOP