Tuesday, January 31, 2012

U.S. Economic Bellwether: California

The Controller for California reported to state lawmakers today that the State of California will run out of money in March.

Governor Jerry Brown and his allies predicted $2.6 billion more in revenue that what has actually occurred, and lawmakers and the courts have spent or delayed cuts on programs costing $2.6 billion more than budgeted for.

"The Assembly budget committee approved a bill today that would enable $865 million of borrowing from existing state accounts, Senate Bill 95. Chiang, after consultation with the Department of Finance and state Treasurer Bill Lockyer, is also seeking about $2.4 billion in delayed payments to universities, counties and Medi-Cal, as well as additional borrowing from outside investors.
Absent these actions, the state would fall below its prudent $2.5 billion cash cushion on Feb. 29, Chiang estimated. On March 8, the state would actually end up $730 million in the red. The state would be below the safe cash cushion for several weeks ending April 13, save for several days at the end of March."

This mirrors much of what is to come for the rest of the country, in my humble opinion.  For years, tax rates have skyrocketed in California, and spending on entitlement programs has also skyrocketed.  These two factors create loss of revenue (when people, tired of the taxes, move or quit producing) and an increase in expenditures.  California is finding is harder and harder to find loans to cover the difference, as potential creditors foresee economic doom and gloom for the state.  For those not economically inclined, that spells bankruptcy in the long term.

Now, we see the same on the national stage, but just a little more behind in the timeline.  As soon as our creditors dry up, we can expect the same in the national economy.  Businesses will leave because of high tax rates, people will become more dependent on the national government as their income falls, and the economic death spiral will ensue.

Or not.  Just depends on our future actions.  On the current path, the Controller for California is a bellwether for the nation.  Take aggressive steps now, or we'll be bankrupt.

You can argue all you want with politics, but the numbers just don't lie.

No comments:

Post a Comment