What Would It Mean If California Went Bankrupt?

[netnet]

California's impending bankruptcy is caused by a long series of deficit budgets, spending more than there is (tax) revenues.. Everyone wants money spent, but no one wants to raise taxes to pay for it.

 

 

 

You can say it that, but it is not as if a majority of the representatives did not vote to raise taxes; they did, but a simple majority is not sufficient on taxes.  (Now as a general rule voters will not vote to tax themselves, but the representatives have to stand up and tell the voters.)  The Dems have voted for tax increases but the 2/3 vote is impossible without the other side; and you can not bring the Repubs along.  Whenever one gets peeled off and votes to balance the budget, the blogosphere and the right wing talk shows villify them and the lose whatever power they had and are threatened with recalls.  (I'm not making this up; although I wish I were.) Arnold was elected on repealing the auto tax. Okay, everybody in Sacramento caved, but he did not propose a way to make up for the lost revenue, nor did the Republicans in the Legislature. Look if a simple majority is sufficient to pass a constitutional amendment in California and it's enough to deny a minority the right to marry, then it should be enough to pass a tax.

 

 

Other than the political impossibility of raising taxes, and revising the property tax roles, California also has highly unstable revenue sources.  The tax revenues fluctuate like tides in the bay of Fundy.  It really is a boom bust cycle and again a principal reason for this dependence on fluctuating revenues is that Prop 13 has boxed out property taxes, which tend to be way more stable.

 

(By the way, oldye re: union protection of child molesters, really that is the stuff of right wing kook radio. A wild charge like that needs some corroboration. You send the link, from a credible source, I'll believe it.  It sure sounds way off the wall, way too off the wall to believe at face value.)

[Rabbitisrich]

I agree with you Netnet. Here is a good opinion piece from the Atlantic Monthly that explains the relationship between Prop. 13 and our reliance on income taxes for revenue: http://business.theatlantic.com/2009/05/should_we_blame_californias_government_or_its_citizens_for_the_deficit.php.

 

However, no one should get the impression that California is some sort of low tax, high spending state. Here is a summary of California taxes relative to other states: http://www.taxfoundation.org/research/topic/15.html. Note that it doesn't include the 2% increase in sales tax to 9.25%.

[bookie71]

Since a state can't go bankrupt, it can become "insolvent".  If that happens and California can't make the payments on its bills and debt, you will probably see a tremendous number of "second" and "third" generation bankruptcies.  These are the smaller companies and individuals who do business with the state that can't pay their bills because California can't pay them.  We saw this a lot in Alaska in the 1980's when we had our depression, a big company would fail and sometime later a bunch of smaller companies would also fail.

[oldye]

 

(By the way, oldye re: union protection of child molesters, really that is the stuff of right wing kook radio. A wild charge like that needs some corroboration. You send the link, from a credible source, I'll believe it.  It sure sounds way off the wall, way too off the wall to believe at face value.)

 

http://www.latimes.com/news/local/la-me-teachers6-2009may06,0,3038809.story

 

I wish this was made up!

[Hoodlum]

Looks like round 2 of the California crisis may be coming again this summer.  Although this time around we will likely see other states joining in.

 

California Creditors Dread IOUs With Aid Plea Failing

 

California’s hopes are fading for federal help in closing a projected $19.9 billion deficit that has caused the lowest-rated state’s borrowing costs to rise 24 percent since September.

 

“We recognize they have enormous problems,” David Axelrod, senior adviser to President Barack Obama, said in an interview. “But we can’t solve all of those problems from Washington.”

 

Investors are growing more concerned that California, whose debt rating was cut today by Standard & Poor’s, will repeat last year’s fiscal crisis that forced it to use IOUs to pay bills. With Governor Arnold Schwarzenegger seeking $6.9 billion in federal assistance to narrow the deficit, the extra yield paid on the state’s 10-year bonds over AAA-rated municipal securities rose to 1.31 percentage points yesterday from 1.06 points on Sept. 11, according to Bloomberg fair market value index data.

 

 

[StubbleJumper]

Yep.  California has some difficult decisions to make.  Other states in the US may also have a tough time.  Greece looks to be in a similar boat.

 

Are there any lessons from the southeast asia currency crisis of (1998???) that we can use to make money in 2010?