It's the thesis of my new blog, "Boomergeddon" (or, "The Retirement Crisis") that the federal government will reach the brink of financial insolvency within the next two or three decades. If you buy my argument, another question logically poses itself: Who will provide essential government services when the feds go broke? Not California, that's for sure. In the aftermath of Tuesday's referenda, in which voters roundly rejected some $16 billion in tax increases, the finances of the "tarnished gold" state are looking more precarious than ever. California is an instance of a state whose governance system has failed. Blame the Ds, blame the Rs, blame whom you choose, but the fact remains, the state is all but ungovernable. And when the federal government follows suit, circa 2030, where would you prefer to be living?
I explore that question in my latest blog post, "Who Will Pick up the Pieces," where I include a table that might be helpful in making that decision: the current bond ratings of the 50 states. If If California is a prelude to a larger, society-wide disaster, only the fiscally strong will survive. Virginia is one. Go see who the others are.
18 comments:
Of course all this is sillyness if you understand that regions are what EMR calls fundamental building blocks and that the whole idea of states will disappear before many go bankrupt.
California will be two New Urban Regions and one of more Urban Support Regions.
What happens to someone who still works..still makes an income...still buys things but they ruined their credit?
do they drop off the edge of the earth into oblivion?
nope.
and neither will California...
will the day after California is declared "bankrupt" will all the law enforcement folks be laid off and citizens will be hiding from the criminals".
well.. perhaps only the ones who were so stupid as to not gotten their own Smith & Wesson...
anyhow... how many police will have to be laid off?
5%, 10%, 25% .. ???
but we know that it would be silly to claim 100%.
What happens when you have to lay off people ?
well.. the work still has to get done... and often... usually? - more efficiencies are found... as well as making some tough choices on things that you decide you just no longer can afford to do...
right?
let's talk about what specific ...really bad stuff will result if California goes financially belly up....
Boomergeddon Jim,
A few points about Califonria since you make some good points and draw a cartoon about others.
First, California has a huge, huge economy with such a big GDP it is bigger than many countries around the world. This fact alone argues that it is a likely survivor. You compare it to Mid Atlantic states, bondwise, like Va., but there really is no comparison.
Second, you assume that California is a bastion of liberal tofu goofies. Orange County has got to be one of the most conservative in the U.S. California produced Dick "the Trick" Nixon and Ronald Reagan. It is not just Bezerekelies and activists Gays in San Francisco. Many of the tech-oriented execs are so anti-tax in their outlook that they make you look like Trotsky.
(3) California always takes the lead in issues, left or right. Carbons caps. Yes. Energy dereg (yes and total disaster), statewide anti-tax propositions, Yes.Once again, California is much more likely to take a dare than conservative ole Virgginy which is always way down the list of a place to try something new.
Peter Galuszka
It's easy. Nobody gets to retire.
Boomergeddon Jim,
Not to beat you to a complete pulp, but I have one more argument.
Your California analyusis is based on one item of data-- bond credit ratings.
Kinda bogus. Let's not forget that S&P, Moody's and Fitch's all have been called to the carpet for misstating credit and self dealing through consulting. A congressional hearing following the financial crisis got internal S&P emails saying that "We would rate cows if they wanted us to."
So, given the sorry performance where all kinds of tainted financial instruments were given AAA and then slash, bang, disappeared, one has to wonder about a line of analysis based strictly on states' ratings.
Peter Galuszka
Cows get rated, and by a fairly sophisticated system, too.
Strangely enough, it depends on production.
But then, we knew that farmers are more ethical than wall street, right?
RH
Paul, You're close to the truth. Everybody working longer and retiring later (even two or three years on average) could make a huge difference.
Peter, You're right, California has always been ahead of Virginia in experimentation and change, sometimes for the better, sometimes for not. I'm guessing that we're witnessing one of those experiments that will be an example of the latter.
A bad credit rating essentially means that in somebody's opinion, that you have too much debt compared to your revenues.
so.. here's a question... how much debt does California have as a percentage of some other metric.. like gross state product, or per capita... etc
COMPARED to... say Virginia... or the United States itself?
Oh... I'm glad you asked that question.....
http://www.taxfoundation.org/publications/show/268.html
this is 2007 data but here is an interesting point.
St Debt per Capita Rank
Calif $ 3151 23
Mass $10,546 1
Now.. why did I pick these two?
Well.. it just so happens that by most measures - NCLB and NAEP - Massachusetts kids rank the best in the country in education results.
so take a look:
State 2006 spending per student
Mass 12,564
Calif 8,301
Okay ..so now for the bonus question
given the above and then the Moody Ratings:
AA2 Massachusetts Stable
A1 California Stable
what does this mean?
"this" meaning that Mass taxes are higher and their rating is higher and their education spending is higher and their educational test results are higher?
So... is the implication here - that California's taxes are not high enough?
total taxes paid (2008):
California - $5,028
Mass - $5,377
http://www.taxfoundation.org/taxdata/show/335.html
hmmmpppphhh...
what the....
what does this mean?
what is California paying for that Mass is not? Certainly not education.
How can mass collect about the same amount of taxes per capita and spend almost twice as much on education... and still have a better rating?
thoughts?
Californis is what, fifteen times larger than Massachusetts?
Maybe they have to pay for more roads, not to mention forest fires, earthquakes, and floods.
But then, they have the California girls.
I imagine they are higj maintenance as well.
RH
How is this explained:
State Debt/capita rank rating
Mass $10,546 1 AA1
Calif 3,151 23 A1
How can Mass have 3 times the debt per capita and a better credit rating?
What happens when a government just prints more and more money?
"Zimbabwe also suffers from a crippling inflation rate, as the Reserve Bank of Zimbabwe has a routine policy of printing money to satisfy government debts, which introduces excessive currency into the economic system. This policy has caused the inflation rate to soar from 32% in 1998 (considered extremely high by most economic standards) to an astonishing 11,200,000% by 2007. Monetary aid by the International Monetary Fund has been suspended due to the Zimbabwe government's defaulting on past loans, inability to stabilize its own economy and her poor track record in regards to corruption and human rights.".
Recently, Turbo Tax Timmy was asked if he had any Zimbabwe money in his wallet. As it turns out, he did! He also had a transit card and some euros. But no dollars. Smart man! He understands the implications of his boss' economic incompetence.
http://www.reuters.com/article/newsOne/idUSTRE54L5LW20090522
re: "printing too much money"
how do you know when "too much" has been reached?
Also... how can Mass have 3 times the debt of California... virtually the same tax burden and have a higher credit rating?
this goes to the heart of your question because the conventional wisdom is that California has done something irresponsibly prolifigate and now they are paying the price and the solution could be for the U.S. to bail them out by printing more money.
right?
I want to know why Mass "looks" on paper worse off that California but California is being blamed for being..essentially worse about their finances than other states.
I am guessing that the issue in California is the trajectory. If Mass has better employment numbers (or at least a slower "growth" in unemployment), more stable real estate values (it's hard to imagine less stable real estate values than California) then maybe they deserve a better credit rating.
Of course, we all should have major, major questions about the credibility of the companies that assess credit risk given the recent meltdown. I see those agencies as #2 on the "hit parade" of villains in the economic crisis. Care to guess at my choice for #1 (hint: it's a choice that I have come to recently)?
well I'd be interested in knowing #1 of the bad actors (along with a bill of particulars).
"How can Mass have 3 times the debt per capita and a better credit rating?"
There are two issues with debt: tha amount of debt and the means to repay it. In california ther is no available cash flow, and given the politics it is unlikely to develop.
In Taxachusttes, they just take it from you.
RH
re: "In Taxachusttes, they just take it from you."
and that gets you a better rating?
so the rating folks LIKE ...higher taxes?
isn't this the same group that votes Republican and for lower taxes?
oh.. I completely forgot.. they want higher taxes on the common man and no taxes for the better off.. because if we tax them they won't create jobs...
of course I never understand how one "creates" jobs...
sure you can take your wealth and build a factory and hire factory workers but it's a loser of a business model if no one can afford to buy the stuff you're producing.
Seems like you could only "invest" in producing something for which there is a demand ...and that would be what determines whether or not you invest - not taxes...
so.. here's the deal.. do the tax policy so that money not invested "properly" is taxed at a higher rate.
very complicated...
Isn't the ultimate plan for the federal government to control the meand of production and distribution?
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