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Posted on Dec 27, 2008 - 1:37am by John P. in Finance, News
Leave it to the Brits to properly report on US news. According to the Independant, California will run out of money in February.
The State of California will run out of money within two months, forcing Governor Arnold Schwarzenegger to start settling bills and paying employees by issuing “IOU” notes, his chief financial officer has revealed….
Unless taxes can be raised, or spending reined in, millions of public-sector employees and private contractors face having their salaries paid in “registered warrants,” a piece of paper which the Governor will promise to exchange for cash as soon as he is able.
The effective bankruptcy of an entire state is unprecedented in American history, even during the Great Depression. Yet despite California’s standing as one of the most prosperous regions of the wealthiest nation on earth, its Governor seems powerless to stave off disaster.
So-called “direct democracy,” through which small interest groups can enact laws by making them the subject of an electoral “proposition” or ballot measure that attracts more than 50 per cent of the vote, has severely limited his ability to manage finances.
Property taxes, the mainstay of any state’s income, have been frozen for many homeowners since a proposition was passed in the late 1970s. A separate measure, introduced in the 1980s, means that income taxes cannot be raised without the agreement of two-thirds of the state’s lawmakers.
Meanwhile, a raft of other ballot measures control spending, meaning that only 25 per cent of California’s spending is considered “discretionary”. The rest has been “earmarked” for a particular cause or project….
So to summarize:
Well, I guess we’re all about to learn what happens when a state goes bankrupt! As if we couldn’t already learn that from the History channel when every major global power eventually gave up the ghost because they were broke.
California is about to lose it’s place as one of the world’s great super-states. Yee-haw for Texas!
I am afraid that example of California will not be the only one. Simply the exponential growth has its limits. In mathematical theory, the exponential curve goes up infinitely. But in reality the exponential growth of population, production and consumption has to hit a ceiling eventually. This is what is happening nowadays. This is perfectly aligned with theory of cycles in economy.
One great concern for California is how its financial position affects its credit rating. If California’s credit rating goes down, California (i.e. taxpayers) will pay a higher rate of interest on bonded building projects like bridges and related large state projects.
At least the governor isn’t on his way to Jail…..yaaaaay Illinois and Blagojevich
i think they should do something about this before i come and visit