California's Default Is Certain 95 comments
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“Sell all California paper now!” says Martin Weiss. Sounds like good advice.
The petty, brain-dead politicians in California are still engaged in their suicidal, ideological stand-off. Thus, there is absolutely no reason to believe the state has either the will or the sense to take any meaningful steps to come up with the mandatory $24 billion in tax increases and spending cuts necessary to avoid true default, some time this summer.
Clearly, the principal obstructionists are the Republicans. There is absolutely no way that this massive, budget shortfall can be bridged through spending cuts alone, unless the state summons the courage to cut-off subsidies for the parasitic, agricultural sector (see “California: better to KILL the poor than TAX the rich”). With Republicans vowing knee-jerk opposition to any/every proposal for a tax increase, they have forced the state's Democrat majority into a position where they must be equally intransigent.
Essentially, the state's Republican dinosaurs are still deluded believers of Ronald Reagan's fantasy: that the U.S. can spend like millionaires but be taxed like paupers. Indeed, it is Reagan who has sown the seeds of the U.S.'s inevitable march toward national default.
With $59 BILLION in outstanding debt, despite a state Constitution which requires “balanced budgets”, Weiss (president of his own company, Weiss Research) says that California's default is “unavoidable” - according to a quote from an interview by Forbes Magazine.
As the same CNN article observes, a default by California on its $46 BILLION of municipal bonds is not just a disaster for the state, but for the entire country – as it would permanently dispel the myth that U.S. municipal bonds are “safe debt”. Of course, that myth is already unraveling, thanks to over-spending, over-borrowing, and the “innovative” forms of debt-financing from Wall Street predators – which is now creating billions in additional losses across the U.S.
This sets the stage for a bail-out of California by the federal government, something strongly resisted by the Obama regime for an obvious reason: as soon as they bail out one state, they will have forty-nine more lining up outside the White House the next day – waiting for their turn for a hand-out.
Ultimately, Obama has absolutely no choice, as I have been writing for many months. The campaign of lies from first the Bush regime and now the Obama regime that “economic recovery was imminent” had the unintended effect of lulling all the U.S.'s gullible governors into a false sense of security.
Two years ago, when U.S. states should have been engaged in severe “belt-tightening”, “Helicopter” Ben Bernanke was already in the midst of his five predictions for an “economic recovery” (see “U.S. states crippled by Bernanke's lies”). Thanks to this compulsive liar, all those governors are trying to play catch-up, while the U.S. economy plummets downward in a worse collapse than the “Great Depression”.
State budget “projections” have become a bad joke, as each forecast must be thrown out in a matter of weeks – as revenues plunge downward, while costs for social programs skyrocket, thanks to a combination of falling wages, soaring unemployment, and wave after wave of foreclosures.
With the gaps between revenues and spending demands widening each week, California is merely the first state which will inevitably be bailed out by the federal government (leading to trillions of dollars of additional debt over the next few years).
All that remains in doubt as of today is whether the Obama regime will “blink” before formal default occurs, and bail-out the Schwarzenegger government – or call its “bluff” and wait until after default before it jumps in to rescue the state (temporarily).
Meanwhile, with the U.S. already having the most-inferior social “safety net” of any industrialized economy, as well as the worst educational system, every dollar of reduced spending on social programs will ultimately cost the states two dollars – through rising crime, rising drop-out rates in U.S. schools (already the worst among industrialized nations), and a financial meltdown at the municipal level, since local governments will feel the brunt of spending cuts.
In turn, this means a combination of a wave of municipal bankruptcies, combined with massive slashing of local payrolls – as desperate local governments try to postpone bankruptcy.
All this time, the U.S. government still continues to squander over $1 trillion per year in grossly excessive military spending – with most of those dollars used to create new enemies, in order to “justify” squandering yet more trillions in the future!
This is exactly how the Soviet Union engineered its own extinction, and despite twenty years of gloating over the downfall of the Soviet Union, there is absolutely no evidence that anyone in the U.S. learned anything from that example.
As the famous philosopher, George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” Sadly, it doesn't look like the U.S.'s political leaders remember that quote, either.
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This article has 95 comments:
What I cannot understand is in the face of all the news suggesting serious problems for the government finances, Treasuries have rallied strongly - somebody believes the deflation caused by falling house and retail prices are more significant than a looming fiscal disaster.
correction of this situation will generate increased costs to consumers at the store, and perhaps less cross-country trucking of produce if foodstuffs are produced closer to the point of consumption.
> jack
Didn't they have a public referendum on raising taxes back in May? It is my understanding that the public voted down all new tax increases and voted FOR cutting state officials' salary cuts, which was subsequently put in effect. Or am I missing something?
On Jun 28 07:56 AM nobby73 wrote:
> I see California as the bell weather for the wider country, with
> runaway deficits exacerbated by falling tax receipts. Unfortunately,
> this requires the raising of taxes for the more fortunate ones with
> jobs and savings, but the looming political impasse in Congress suggests
> serious trouble.
>
> What I cannot understand is in the face of all the news suggesting
> serious problems for the government finances, Treasuries have rallied
> strongly - somebody believes the deflation caused by falling house
> and retail prices are more significant than a looming fiscal disaster.
I love it. Show me a politician or box-ticking state bureaucrat who understands real economics and there you will have a rare commodity indeed. Maybe one even worth voting for.
They spent money as fast as possible, never saving for a rainy day.
They will devolve into chaos.
And, so will the rest of the country
The average Social Security payment is like $13,600 a year and average California state retiree is paid $30,000 to $40,000 a year.
A retired San Francisco fire chief reportedly has something like a $240,000 pension, plus a current city budget officer job that pays him another $170,000 a year.
California presumably will cut programs for the huge throng of illegal immigrants they have welcomed into the state, in defiance of immigration laws and common sense. Even California has proven that unrestrained immigrant growth in a nation with a zero native population growth rate harms a fragile environment as well as economic environment.
The rising tide of taxes, the overcrowding in cities, the traffic snarls, the urban sprawl prompted entrepreneurs to flee California. If the state had cultivated a more stable and sustainable environment, these emigrants would have still been around to help with a solution.
Eliminate CalTrans and go back to local contractors.
Get our kids off the electronic heroine and back mowing lawns, delivering papers & sacking groceries.
Cut government salaries benefits (esp. retirement) at all levels.
Bring all of our troops home.
Audit the DOD & all contractors.
Require a high school diploma to get a driver's license.
Increase taxes on the wealthy.
Mourn the death of common sense.
Just some early morning ideas.
- Indeed, it is Reagan who has sewn the seeds of the U.S.'s inevitable march toward national default.
YES!! Reagan was deified during the elections as if he was the end all be all but he was just another kick the can down the road president who took us deeper into debt with no intention of every paying it off.
- Obama is a liar
YES and so was bush and Clinton and all the Keynesian print and spent or borrow and spend presidents before him.
ALL OF THEM racked up debt in order to stay in power. The GOPs had one set of palms to grease to stay in power and the Dems had another but they were just 2 sides of the same coin. The recent elections proved that an intelligent statesman with a clear economic understand, heavy moral values, and strong constitutional ties STANDS NO CHANCE against the freewheeling Unified Keynesian Socialist Party. McCain would have done the same thing as Obama. They both work for the financial elite, not the American people.
RON PAUL was the only intelligent choice but there are not enough intelligent Americans to vote him in. This is what happens when you turn a Republic into a Democracy. Every freeloader gets a vote and they always vote more for themselves with the clear knowledge that it will have to come from someone else's pocket. At the same time, its hard to make a living in a minimum wage world. Its the age old class war. Elite think that the common man should be his willing slave and common man thinks the elite owe him a living.
You can make this claim but California already pays among the highest taxes in the nation. It is not about revenues, it is all about spending.
You can say it's the evil Republicans, but the very liberal Democrats in California government have been in charge for decades and have not seen a union or social program they didn't like.
I agree with Northstar - you could make the cuts to balance the budget if there was anyone in Sacramento with a spine. Call it obstructionist - but at some point someone has to say, "No - that's it we're done."
When Tom McClintock was running in the Davis recall election he proposed a simple across the board 10% cut - every department. Draconian - the critics screamed. What's going to be draconian now?
These were light and flexible governments which failed over time due to weather or changes in their geographic locations as did Athens and Rome when nations around them no longer needed them and they became a financial sink hole.
As went Rome so goes the USA . People go where opportunities are good and leave where governments are oppressive and exploit the people to the advantage of the governors and their kickback pals.
When the boom goes bust, humans move on. When you have no realizable value left move on.
It's the way to survive.
.
What a joke of an article!
You're correct in saying the state doens't have the will to make $24 billion in cuts. But you don't say why. The reason is that the democratic controlled legislature is obligated to the unions that put them in power. They won't cut anything union related (we taxpayers will have to do the dirty work there and force the changes) and have made no meaningful cuts to anything.
But to call Republicans obstructionists is nuts. Citizens of California are taxed well beyond any other state. And, if they could, politicians would levy another mountain of taxes that would drive even more taxpayers and business owners out of the state. The Republicans (though they did conspire to implement the largest tax increase in history back in February) are the only defense the citizens have against a legislature hell bent on destroying the tax base in this state. There are only so many rich persons in this state (even fewer as the economy lags and the stock market fluctuates). Before any tax increase is considered, massive cuts need to be made to show that the legislature is serious about correcting the structural defects in California's government. For now, we must stop feeding the beast to force cuts in unnecessary spending and pare back the size and scope of California's government.
Quoting CNN is like me asking my liberal neighbor his opinion.... not worth energy.
Any federal bailout of California is meerly a temporary band aid that would mask the underlying problem. Once the money is spent, you're in a worse spot because you don't have any money and no one is going to lend you any money.
And, exactly what level of military spending do you recommend? I get the feeling that your military stategy is "can't we all just get along" rather than peace through strength.
Finally, the Soviet's engineering of their extinction must have been a bitter disappointment to you. I think the Soviet's today are more capitalistic than our democratic politicians here are. Our media resembles Tass of the pre-1990 era. Our media is suppose to report on activities of government, not cheerlead and befriend them.
Most political leaders are only concerned about power and could care less about the future of this country. We can't afford amnesty, cap and trade, socialized health care, and running the auto industry. I see a train wreck coming with little to stop it.
I love reading Jeff's observations, i just can't support most of his solutions. On the American "left coast" the one and ONLY problem is runaway public spending. Having lived and worked in all three coast states in the last 20 years, I can tell you personally that tax revenues have been more than sufficient to support reasonable levels of public service. The problem is that the states simply spend every penny plus a few yea in, year out. Even in the current downturn, state and local governments are still spending more than they take it. So higher taxes are not the answer.
Just for reference, a recent newspaper review of public agencies in SW Washington revealed that during the last two years public agency pay and benefits were rising at 5% per year while tax revenue was rising at 1% per year. That is simply bad management.
On Jun 28 09:14 AM yellowhoard wrote:
> California is a microcosm of the US.
>
> They spent money as fast as possible, never saving for a rainy day.
>
>
> They will devolve into chaos.
>
> And, so will the rest of the country
to Pelosi.
On Jun 28 09:51 AM Northstar10000 wrote:
> You are a nut case. Give me 1 year and I'll strangle the spending
> so not a dime will come from tax increases. First start with no lay
> offs of state workers. Everyone takes an automatic 10 percent reduction
> plus a complete and total wage freeze for 2009-2012. I'll bet no
> one state worker would leave. Next no benefits for Illegals, no medical
> care nothing. Spend the money shipping them back. Next illegals
> in jail will be escorted across the border freeing up jail space.
> Next No taxes on income over 1 million. Bet you don't want me to
> continue.
Taxes are regressive. Once new sales taxes are enacted, revenue goes up, then comes down after 6-8 months and then goes lower than the starting level. People find a way to get around paying taxes, or just don't buy or buy as much as they did before, hurting not only tax revenue, but businesses affected by lower sales volume.Taxes on companies and corperation are taxes on the end users. Corperate taxes are passed onto the end user, corporations and businesses never pay taxes, they are always passed, the problem now is it is another sales tax on the consumer and the consumer adjusts like they would with a direct tax. When does it end. Realizing that increasing taxes on anyone hurts your economy , why increase taxes? Example, when a luxury tax on yachts was imposed, the rich avoided purchases thus putting businesses out of business and the workers out of a job. Increasing tax burden on anyone is not productive.
Bush and Obama - Remember, there is a president, House and Senate. The President is not a king (yet). The budget comes from the house and senate, no matter what the president wants, he can only sign (or veto) the bill that is given to him. To say "under the so and so administration this happened" is a small part of the picture. You need to look at who was in control of the house and senate. The house and senate passes spending bills and laws. The president only signs them, quite a lot of times reluctantly.
"Better to kill the poor than tax the rich" - Come on and get real, the republicans want to kill the poor? California has fostered this take care of everyone mentality for years. Everyone! The truly needy need assistance, but able bodied men and women should work, no matter how hard and how cheap. When you take welfare away from the able bodied, they WILL work. They should be out in the fields harvesting vegtables, not illegals. The able bodies must start becomming productive members of society instead of a leach on society. Illegials should not receive local, state or federal benefits. They are here ILLEGALLY! They are not US citizens! They are not invited!
Waste, yes, gobs of waste, all states have gobs of waste, the fed even more.
Not raising taxes to correct California's problems IS the necessary step, OR when will the wastful spending and obscene taxes stop?
I have lots more, but I want to get to church. God bless America and God bless you all.
It should be modelled on the same that manages municipalities (I think it's Chapter 9?) But the state needs a Constitutional Convention to recall all of its legacy initiatives that lock-in spending regardless of revenues; we need to break all the state employee unions, and spin off CalPers.
Yes to know ones' buisness is to know what they would buy into. Selling the very best that their money can buy is to know what would work for you. Buying into their money worth is working out the business.
You see. Economics problems are people's problems. Now you know more than Schwarzenegger and Obama.
it does nothing to help the addict kick his habit.
.
It follows therefore, that a federal bailout to California is ill advised.
On Jun 28 11:15 AM secmaven wrote:
> 20 billion from the Feds to keep CA up and running is chicken feed.
> Ten times this amount has been pumped into ONE defunct insurance
> company headquartered in NYC. Send a pittance of this money west
> and the good times wills surely keep rolling.
As others mentioned, the benefits for illegal aliens is staggering, the jails are overflowing with non-violent drug offenders, the state government grow with regularity, etc etc. Now we have perhaps the highest unemployment in the nation, and you're suggesting that a tax hike is also necessary to fill the gap. I believe we're probably at that point on the Laffer curve that increasing taxes will NOT increase revenue - at least in the current fragile state of California's economy.
Discounting this by calling it "Reagan's fantasy" is in and of itself a failure to take into account the current, diminished capacity of the people to produce income. Californians, and California politicians need a dose of reality. You don't keep feeding more heroine to an addict trying to quit. You also don't feed more cash to politicians that haven't learned how to reign in spending. I hope this will serve as a lesson to California's out of control legislature, and the voters that keep putting them there. (I am a resident of California and would like to see these people punished for their ongoing terrible decisions. Without suffering from what they've done, they'll never learn.....)
CA is the leader and it will finally move to the right and solve their problems with some one with intelligence.
I had no idea that Reagan was active in 1913 in the passage of the Federal Reserve Act, and the passage of the 16th amendment and the income tax - which is when the seeds were sewn for the inevitable default that is coming. Of course, Reagan, among every other president since that time, participated in the watering of those seeds and the faithful tending of the monstrous weed that sprouted, and which now is busily devouring the rest of the garden.
It never ceases to amaze me the utter ignorance of history that is often on display in these mainstream essays. As though these problems began a few short decades ago! Puh-lease! We're seeing the ineluctable culmination of ~100 years (arguably, even more than that) worth of Statist governmental and monetary policies.
The dollar is one of the few currencies that are accepted as legal tender, globally. And this is why we have a large population of immigrants in the USofA, legal and otherwise. As of today, over 50% of all dollars are held by foreign interest.
Since the beginning of the cold war, we have been using currency to buy what we need. And we will continue to do so, until the commercial world no longer accepts the dollar as legal tender.
Our budget deficit is occurring because foreign dollars holders are using their dollars to buy our debt.
Likewise immigrants are coming here because our dollar is a global currency and we can buy what we need without having to go through the process of exchanging value for value. If our government had to fund programs through the taxation of earnings, our consumption prosperity would not have occurred and we would see a more even development through out the world.
China, Brazil, Russia and other countries have advocated that national currencies used as a global currencies be replaced with on global currency. Once this occurs then we will see our government leadership act in a fiscally prudent manner. Until then, expect more of the same.
It simply isn't possible to add an essay on taxation into a piece of this size, so I would encourage everyone to read a previous essay I wrote precisely on that subject. (www.bullionbullscanada...)
Yes, people in the MIDDLE of California's wealth-spectrum are being GROSSLY OVER-TAXED - to make up for the fact that the fat-cats at or near the top get a complete FREE RIDE.
If any of the critics had taken the time to read a follow-up link in that piece, they would have seen me EXPLICITLY state that 100% of the extra, needed tax-dollars should come from the fat-cats at the top.
And, as I correctly pointed out, it is the REPUBLICANS who are the permanent defenders of giving the fat-cats a free ride in taxation.
P.S. By "fat-cats" I'm referring to people who are AT LEAST in the high seven-figure level for wealth, and above.
I don't think so.
Now I am wondering about property ownership, is it a bad thing?
Capt Brian
The Lost navigator
Just push the real decisions further down the road.
Come to Michigan to see how great it works out when a state "balances" its budget through increased taxes, fees and regulations.
Let me give you a hint, there are even fewer jobs (this is BEFORE the GM/Chrysler bankruptcies), fewer businesses (taxpayers) and more welfare/illegals and whiny state workers.
We are in deep crap and BOTH parties are 100% to blame.
Please don't continue to fan the Red vs. Blue fight. This fight is the REASON we are so screwed.
Furthermore, as you Americans know much better than a lowly Canadian like myself, in the U.S.'s dysfunctional two-party system, the MINORITY is frequently able to COMPLETELY neutralize the supposed power of a "majority".
On Jun 28 02:04 PM Jimbo wrote:
> Gee Jeff, I had no idea that the Republicans had snuck into Sacramento
> and screwed up California all by themselves. Please post the last
> date when the Republicans controlled the California legislature.
US will not, because US will have to use inflation to write off all debts.
Trying to enlighten Jeff that the California legislature is overwhelmingly Democrat will only get you a blank, uncomprehending stare and the retort that Republicans stand in the way. Hell, Jeff, there aren't enough Republicans in the CA legislature to stop anything that the Democrats really want. The Democrats in the state legislature NEED the Republicans to save the Democrats from themselves and their wasteful ways AND someone to blame CA's problems on that are caused by the Democrats. It's an excellent system for term limited Democrat state legislators.
The real solution to California's problems is for the Republican Party to sit out the next state elections. Let the Democrats become 100% in charge of the legislature and executive. I know, its "Tough Love", but it's the only way that "Progressives" like Jeff Nielson will learn where progress isn't..
On Jun 28 02:40 PM Jeff Nielson wrote:
> "Jimbo,....... in the U.S.'s dysfunctional two-party system, the >MINORITY is frequently able to COMPLETELY neutralize the >supposed power of a "majority".
On Jun 28 01:10 PM Jeff Nielson wrote:
> Wow! Quite the response. Thanks to everyone for the comments. Let
> me address one frequent theme here: the confusion between the AMOUNT
> which is being taxed from individual Californians versus EFFECTIVE
> TAXATION.
>
> It simply isn't possible to add an essay on taxation into a piece
> of this size, so I would encourage everyone to read a previous essay
> I wrote precisely on that subject. (www.bullionbullscanada...;view=article&...
>
>
> Yes, people in the MIDDLE of California's wealth-spectrum are being
> GROSSLY OVER-TAXED - to make up for the fact that the fat-cats at
> or near the top get a complete FREE RIDE.
>
> If any of the critics had taken the time to read a follow-up link
> in that piece, they would have seen me EXPLICITLY state that 100%
> of the extra, needed tax-dollars should come from the fat-cats at
> the top.
>
> And, as I correctly pointed out, it is the REPUBLICANS who are the
> permanent defenders of giving the fat-cats a free ride in taxation.
>
>
> P.S. By "fat-cats" I'm referring to people who are AT LEAST in the
> high seven-figure level for wealth, and above.
On Jun 28 12:18 PM ozzy43 wrote:
> "Indeed, it is Reagan who has sewn the seeds of the U.S.'s inevitable
> march toward national default."
>
> I had no idea that Reagan was active in 1913 in the passage of the
> Federal Reserve Act, and the passage of the 16th amendment and the
> income tax - which is when the seeds were sewn for the inevitable
> default that is coming. Of course, Reagan, among every other president
> since that time, participated in the watering of those seeds and
> the faithful tending of the monstrous weed that sprouted, and which
> now is busily devouring the rest of the garden.
>
> It never ceases to amaze me the utter ignorance of history that is
> often on display in these mainstream essays. As though these problems
> began a few short decades ago! Puh-lease! We're seeing the ineluctable
> culmination of ~100 years (arguably, even more than that) worth of
> Statist governmental and monetary policies.
The big problem is this: Socialists know they can buy votes through largesse, it is as simple as that.
Now California is the litmus for the nation. It is time to turn off the damn spigot. When you don't have money, you have to stop buying. Cut the damn expenses. Period.
The author ovbiously doesn't get it, but then the socialists never get it. It is always the Republicans fault that every one doesn't have free lunch.
Remember you cannot eradicate the maggots out of the garbage pail by feeding them. sounds rough but the fact of life is this: the more you provide for those who cannot provide for themselves, the more of them you will have until we run out of yours and other peoples money and then we all get to enjoy poverty and despair.
I agree that politicians care more about power than the nation. But what is with pinning the demise of capitalism on the Democrats? What party began the massive bail out of Wall Street, the automakers, the insurance industry, etc., thereby setting you and your children up for higher taxes? Partisanship is clouding your vision.
Why can't the U.S. afford socialized medicine when every other civilized nation in the world can? Again, your right-wing goggles are not letting you see. Try looking north to Canada. We get more than adequate care and are not getting it up the *** from private health insurance companies who, along with the drug multinationals, call the shots on American healthcare by holding sway over the self-interested politicians you note in your last paragraph. The U.S cannot afford the system it has NOW.
The Canadian government is not panicking trying to re-make the health care system, BECAUSE IT WORKS. I pay $54 a month for my coverage. Beat that. And go ahead. Call us socialists. We don't lose our homes over medical emergencies up here.
And, letter-writers and author: what you "sow" becomes "sown," not "sewn." And to the guy who wants to tear away the social safety net from people who did not graduate from high school: you would penalize thousands of kids who grew up so disadvantaged that they were not TAUGHT the value of education and thus dropped out. Most kids who drop out are not just "plumb lazy," and if they are, the blame may well rest with their parents.
On Jun 28 10:59 AM sparticus on stocks wrote:
> Jeff, you're a funny man. I'm just going to pick through your column
> and comment along the way.
>
> You're correct in saying the state doens't have the will to make
> $24 billion in cuts. But you don't say why. The reason is that
> the democratic controlled legislature is obligated to the unions
> that put them in power. They won't cut anything union related (we
> taxpayers will have to do the dirty work there and force the changes)
> and have made no meaningful cuts to anything.
>
> But to call Republicans obstructionists is nuts. Citizens of California
> are taxed well beyond any other state. And, if they could, politicians
> would levy another mountain of taxes that would drive even more taxpayers
> and business owners out of the state. The Republicans (though they
> did conspire to implement the largest tax increase in history back
> in February) are the only defense the citizens have against a legislature
> hell bent on destroying the tax base in this state. There are only
> so many rich persons in this state (even fewer as the economy lags
> and the stock market fluctuates). Before any tax increase is considered,
> massive cuts need to be made to show that the legislature is serious
> about correcting the structural defects in California's government.
> For now, we must stop feeding the beast to force cuts in unnecessary
> spending and pare back the size and scope of California's government.
>
>
> Quoting CNN is like me asking my liberal neighbor his opinion....
> not worth energy.
>
> Any federal bailout of California is meerly a temporary band aid
> that would mask the underlying problem. Once the money is spent,
> you're in a worse spot because you don't have any money and no one
> is going to lend you any money.
>
> And, exactly what level of military spending do you recommend? I
> get the feeling that your military stategy is "can't we all just
> get along" rather than peace through strength.
>
> Finally, the Soviet's engineering of their extinction must have been
> a bitter disappointment to you. I think the Soviet's today are more
> capitalistic than our democratic politicians here are. Our media
> resembles Tass of the pre-1990 era. Our media is suppose to report
> on activities of government, not cheerlead and befriend them. <br/>
>
> Most political leaders are only concerned about power and could care
> less about the future of this country. We can't afford amnesty,
> cap and trade, socialized health care, and running the auto industry.
> I see a train wreck coming with little to stop it.
It's a national problem of the US, and California is bearing the brunt of it. If only the California problem could be traced to "fat cats" not paying their share, as the autor suggests. Sadly, there aren't enough fat cats to go around, and those who do still stay in California should be encouraged to stay,and to keep their assets in California.
California's problems stem from (1) its horrendous immigrant problem, (2) an overpaid, corrupt class of politicians and civil "servants," and (3) a tax structure that would keep any fiscally sane person from moving to the state, or staying there.
California has a graduated tax rate, starting at 1%, capturing most of the middle class at 9.3%, and taxing those over $1 million at 10.3%. Sales taxes vary by county, and are 9.75% in San Diego County and Alameida County, and over 10% in parts of the state. You don't think that causes fat cats to do arithmetic and plan an exit? How much higher do you want the rates to be?
If there is a "free ride," it's for homeowners (and I'll submit most are not "fat cats" and just want to keep their homes). In California, property only gets assessed when it changes hands. It's an "everyman's" tax break, not a handout to the wealthy.
I agree that California cannot possibly honor its governmental obligations. The problem does not stem from tax breaks to the wealthy. It's systemic. No country can provide 21st century medical care and benefits to this many new people.
Because the immigrant class is actually a source of wealth and jobs for civil servants and politicians, in Sacramento and washington, democracy isn't working in California. So California will go broke, and after other communities do the same, we will eventually elect politicians who listen to the people and fix this mess.
In the U.S., the poor are poorer than in other "wealthy" nations AND the rich are MUCH richer. Taxation is the #1 wealth-redistribution tool in EVERY society. So, in a society where the rich get richer every year, and the poor get poorer every year, it is totally self-evident that the tax system is TOTALLY flawed - and specifically, it is highly skewed to favor the rich.
This is PURE arithmetic - and if you can't UNDERSTAND this, I recommend re-enrolling in elementary school.
On Jun 28 03:11 PM Buckoux wrote:
> Sounds like you've got a real bad case of class envy, Jeff.
On Jun 28 08:37 AM a. palmer jr. wrote:
> I don't understand why California is in this mess...it looks like
> a solution is simple, if you have the will to pull it off. It's
> just a matter of simple mathematics as taught in elementary school;
> to balance their budget they either have to take more in or quit
> sending more out or both. In California's case right now it's both.
> I know that will make some people unhappy but they shouldn't expect
> money for nothing anyway. I'm sure the movie stars won't mind maybe
> 1% more on their taxes if we'd ask them and I'm positive the illegals
> in California wouldn't mind going back home for awhile while Arnie
> gets the budget balanced. The welfare moms could work, as a last
> resort, in a McDonalds or Taco Bell to help out, like I said, only
> temporarily while the problems are being solved.
I'm a strong believer in the "KISS" principle ("keep it simple, stupid"), so for me, all roads lead to precious metals.
The U.S. debt-crisis can only end in a deflationary implosion, or hyperinflation - and THEN a deflationary implosion. California is merely a harbinger of what lies ahead for the country, as a whole.
Precious metals is one, if not the only asset-class which is guaranteed to thrive in either of those scenarios.
For the equities component of peoples' portfolios, I recommend QUALITY gold and silver mining companies. The vast majority of the companies with the BEST growth-profiles are the "junior producers" (listed on Canadian indices, or U.S. "pink sheets").
Naturally, MOST commodities and commodity-producers have similar potential in most possible scenarios - so diversifying into many different commodity sectors is a good means of spreading out risk.
On Jun 28 03:55 PM Michael J. Golde wrote:
> Another brilliant article by this author. Dead-on in all respects.
> I would also be interested in his thoughts on how one should use
> this information to invest sensibly or protect oneself against downside
> risk.
Such a fear touting moron.
A true Liberal to boot.
The California constitution states that before debt payments, only one state function can be paid, that's "education". Currently it takes 38 billion to pay for education, leaving 55 billion to pay the 5 billion in debt payments. I think they can cover the debt, it's the rest of the state government that will have to yield.
P.S. I'm sure Reagan caused the fall of Rome.
The whole country has been spending way beyond our means for the past 40 years at both the state and federal levels. We have WAY too many entitlements in the minds of all sorts of people. We need to learn 2 things: Resourcefulness on an individual level. Generosity on an individual and family level. Local governments also need to scale back and stop confiscating people's homes and incomes via property taxes. What passes for education is the country is a farce. Spending more money on the system we have is just good money after bad. We need a burn-to-ground reconstruction and paradigm shift.
I whole heartedly support the crushing of CA's cost structure. Way to go Republicans!
The poor in California have got it much better than the poor anywhere else on this globe. I have personal knowledge of an illegal immigrant that has received two brain surgeries for a malignant tumor. For free. He returned from Mexico for the second surgery, just as he came during the first, "without papers". How do I know this? I employ his legal brother. His brother is happy for the care, but he is a California taxpayer, he too is now conflicted about these costs and who bears them. When America - and California - was a "Land of Immigrants", there was no welfare, no federal or state mandates.
As for your comparison of the poor in this country to the poor elsewhere, I know that the poor here have, at the minimum, color TV. I've seen the really poor places in most of the "wealthy" nations of Western Europe and the term, "Potemkin Village" comes to mind when I contemplate London, Rome, Paris, Munich, and other major Capitals of the world. Get out of the tourist traps, Jeff, and see the world for the true misery it really is!
As for my education, Mr. Nielson, my elementary school is long gone to the wreckers ball, but if you've the time, and/or inclination, I'll be happy to meet you on the quad of one of America's military academies. That is, the the one that is my alma matter, and we can discuss: "ECONOMICS"! Bring your books or gloves, but bring much more than you've brought here.
On Jun 28 04:43 PM Jeff Nielson wrote:
> No, Buckoux, I simply have a good understanding of ECONOMICS and
> an even better understanding or arithmetic.
>
> In the U.S., the poor are poorer than in other "wealthy" nations
> AND the rich are MUCH richer. Taxation is the #1 wealth-redistribution
> tool in EVERY society. So, in a society where the rich get richer
> every year, and the poor get poorer every year, it is totally self-evident
> that the tax system is TOTALLY flawed - and specifically, it is highly
> skewed to favor the rich.
>
> This is PURE arithmetic - and if you can't UNDERSTAND this, I recommend
> re-enrolling in elementary school.
Liberalism has promised everything to everyone who has a palm to grease, especially the minorities who populate so many of the public service jobs. Minorities fill the Democratic voter rosters. Minorities react to perceived threats of white repression. So, they vote anti-white and anti-conservative out of fear of loss of their livelihoods. White candidates need the minority support, so they cater to them however they can, with promises we know can't be kept.
Here's the total, sir: The state is LIBERAL, with huge (now non-) minority voting blocks. It is BANKRUPT. Two plus two equals FOUR.
Get it now? Reagan had nothing to do with this mess. I live here, and I know it full well.
So I'll say yes to the bailout of California, with strict enough conditions to make bailouts unappealing for the other 49 states. The federal taxpayers will tide California over while it straightens out its finances, conditional on enough Republicans acting like adults and agreeing to tax increases to access the structural deficit. California will also have to stop requiring a two-thirds majority for tax increases. Maybe California will be required to reform their ballot initiatives.
It seems such a large amount of federal dictation of how a state handles its finances should deter any other state from wanting to let things get to the point of asking for a bailout.
Obviously, their problem isn't insufficient taxes, but excessive spending by the politicians that are beholden to the special interests, mainly the California state employees.
Only a complete idiot would blame California's current fiscal situation on Ronald Reagan who was Governor 40 years ago.
--The California budget has grown by almost 50% in the last 10 years (I promise you, as a resident, that the quality of services is the same or worse).
-- One component of the Democrats "plan" for the budget is moving back the June 2010 payroll by ONE DAY to shift that problem to the following year.
-- California state income rates are 9.3% for all income over 44k (which is subsistence level here).
The public trough is very large and has many pigs feeding from it. But, Republicans are wrong for trying to cut spending? Don't conflate the national Republican party (which you might have read about) and their reckless spending with the CA one (which you clearly don't know anything about).
Looks like you just felt like piling on to the schadenfreude with your ignorance. Bravo.
The point is the financial system has been proven to be structurally and fundamentally broken. That system developed through Republican and Democrat terms.
The point is, surely, that the system we have is over-taxed, stimulated by unsustainable debt bubbles and run by bureaucrats who generally do not have the intellectual capacity to understand the difference between printing money and the measures required to generate real economic wealth.
All I see is the country manipulated by industry, particularly the financial industry, obsessed with next quarters earnings, cutting pay-rolls and re-distributing the wealth from one section of society to another.
Shouldn't business be about growing wealth for all - and shouldn't the aim of the Fed be that as well? If you dig deep, there is a common theme that is causing these problems: Debt.
seekingalpha.com/artic...
On Jun 28 01:10 PM Jeff Nielson wrote:
> Wow! Quite the response. Thanks to everyone for the comments. Let
> me address one frequent theme here: the confusion between the AMOUNT
> which is being taxed from individual Californians versus EFFECTIVE
> TAXATION.
>
> It simply isn't possible to add an essay on taxation into a piece
> of this size, so I would encourage everyone to read a previous essay
> I wrote precisely on that subject. (www.bullionbullscanada...;view=article&...
>
>
> Yes, people in the MIDDLE of California's wealth-spectrum are being
> GROSSLY OVER-TAXED - to make up for the fact that the fat-cats at
> or near the top get a complete FREE RIDE.
>
> If any of the critics had taken the time to read a follow-up link
> in that piece, they would have seen me EXPLICITLY state that 100%
> of the extra, needed tax-dollars should come from the fat-cats at
> the top.
>
> And, as I correctly pointed out, it is the REPUBLICANS who are the
> permanent defenders of giving the fat-cats a free ride in taxation.
>
>
> P.S. By "fat-cats" I'm referring to people who are AT LEAST in the
> high seven-figure level for wealth, and above.
Your argument that high seven digit incomes has no support statistically. You could do an immediate asset tax of 50% of the every millionaire and you wouldn't come close to closing the gap even for a month. Show us the numbers of how the capital will stay in place for this new asset tax and show us how it will close the gap not just this year but as a sustainable revenue stream.
Why is this idea of rich so hard to determine before the elections it was indicated as over 250k in income but most deductions phase out after 150k.
The idea under liberal rules is that this wealth can be regenerated in a few years - when it sometimes takes generations of low taxes. The wealth- what is left - flees empowering the labor party even more- maybe this is Canada? With the productive savings element gone the disparity decreases and the poor become even more government dependant and poorer. I believe I saw after 40 years of reducing disparity in Cuba that the leader was listed as one of the wealthiest people in the world. Did Russian after 40 years reduce disparity or are they left with no middle class?
What ever happened to not taxing dividends (have the workers of companies get more return for their labor) and having interest payments on debt not tax deductable? Who will crush this idea- liberals. Why are we promoting massive debt at corp levels and presonal levels? Why do colleges extends loans that cannot be repaid? Why is the housing market similar to the 1929 stock ownership plan with 10% down and massive debt?
California wages, public pensions and housing markets are very highly priced - the equity that people have pulled from there is enormous. It is time to end the disparity in Calif. vs the rest of the states and have their asset prices and program costs equal to the rest of the average prices in the remaining states.
It is time to end the enormous wealth gap created in Calif as opposed to the other states and make them pay and not slip out due to the political importance of Calif to the Democrat party.
On Jun 28 03:11 PM Buckoux wrote:
> Sounds like you've got a real bad case of class envy, Jeff.
Will debt-based spending and the resulting unsustainable status quo be able to be maintained much longer?
Or will CA Republicans actually be able to force structural changes that bring CA into financial reality that does not impoverish everyone not receiving government credit-card-financed largess?
Stay tuned, same bat time, same bat channel.
Lets reward the non-productive. House as many in jail as we possibly can, and give them better rights than the citizens we want to protect. Pander to illegals so we can get more votes. Open our emergency rooms as the new Statue of Liberty(and charge the rest of the legal citizens for it).Tax the crap out of the system. Cut personal liberty's every chance we get to pass a law. Let's play non-competitive sports. Let's tell people what light bulbs they have to put in their kitchens. Let's teach our kids why we have 2 Mommy's at home or 2 Daddy's at home(forget math and science oh and that thing called English). Lets pay pedophiles $850 every 2 weeks and put them up in hotels in the state capital because jail is to rough. Let's pay retired state workers/politician's to sit on boards that meet 4 times a year and collect 100k plus salaries. Let's pay hundreds of millions to nude art museums. Welcome to the Democrat way here in California. Pure communistic/socialistic tendencies and abuse of power. No different than say Michigan? Look who has been in power? If you want to see failure look at regions of America controlled by the new Communist party.
Interesting, a listing of books for summer book report reading: under the biography selections: Hillary Clinton, Barrack Obama, Hugo Chavez, Nelson Mandela, and Joseph Stalin. My nephew brought this list back from his school here in CA.
The rich kids at the playground have all the toys and are loathe to share any of them with the rest of the class. The small group of wealthy brats have been kicking sand in the faces of their classmates for a long time and I will not be at all surprised when someone in the class decides they've had enough. When the bullets start flying, I'll be glad I live in Canada.
Good luck Cali... It's been fun.
On Jun 28 09:56 AM Northstar10000 wrote:
> Sorry I could not resist just one more. No safety net for those who
> do not have a high school education. don't bother to present your
> fake one, well just check directly with the school. Thank you
But how about blaming the knuckleheads who actually overspent??
That would be the Democrats in the legislature who control spending and have run the spending process for decades.
And poor ol' socialist Jeff just doesn't understand that when you attempt to overtax high earning individuals, they vote with their feet and MOVE!!!! I did..left CA in 1999.
Jeff touts himself and being so knowledgable about economics.
Isn't it a maxim of economic teaching that money goes where it is treated best??? Job creators are leaving Calif in droves due to high taxes.
5 properties near my land were just bought by Californians (2 more from Oregon last week too) and they payed more than the asking price.
British Columbia, the "other" California! lol
Oh yeah... we pay more taxes here, but at least I can go to sleep at night without triple deadbolting my door and keeping a loaded 44 near the bed. Canadians are like un-armed Americans with healthcare.
On Jun 29 02:16 PM kohalakid wrote:
> Yeah, it's just easy to blame the republican governors or the "obstructionist"
> republicans in the legislature.
>
> But how about blaming the knuckleheads who actually overspent??<br/>
>
> That would be the Democrats in the legislature who control spending
> and have run the spending process for decades.
>
> And poor ol' socialist Jeff just doesn't understand that when you
> attempt to overtax high earning individuals, they vote with their
> feet and MOVE!!!! I did..left CA in 1999.
>
> Jeff touts himself and being so knowledgable about economics.
>
> Isn't it a maxim of economic teaching that money goes where it is
> treated best??? Job creators are leaving Calif in droves due to high
> taxes.
Local and state governments revenue is falling because people have less money to spend every month because credit card companies are on a mission to raise interest rates on the almost one trillion dollars in credit card debt which just erodes more and more buying power from the citizens.
The irony is, unlike the banks that asked for and received a bailout, all the consumer needs is a break. Just eliminate the interest charges on consumer debt that is over three years old so the consumer can start to PAY DOWN their credit card debt.
There will be no economic recovery until the almost one trillion dollars in credit card debt is at least cut in half.
www.daily-protest.com
> Yeah, let's tax The Rich & The Evil Corporations, and that way
> we'll be able to provide free food, shelter, and health care to those
> that don't contribute or even belong there. This article was a political
> statement, lacking in any sort of constructive options for CA. The
> editors were obviously asleep at the wheel on this one.
Are you suggesting censorship?
I don't agree with that statement either but I certainly don't want some editor censoring what we say. In fact I want to know just how "out there" a person is and those little comments help me to put all of this article into perspective.
My, oh, my! Looks mighty like a derivatives position; or perhaps that of the US fiat dollar 1-2 years from now
1. California is too big! Various proposals have been made to divide the state into 2, 3, or even 4 more manageable and less heterogeneous chunks.
2. California is too politically extreme! Some of the most 'left' of the country's "D's" live in the Bay Area while some of the most 'right' or the country's "R's" live in Orange Co., the Inland Empire, and NE CA! These folks live in entirely different worlds of meaning. When their representatives get to Sacramento, they may not even be able to agree on what "is" is, let alone priorities or a budget.
3. Californians are selfish, just like the rest of us. Many believe that they can get something for nothing. When asked to vote on a huge tax cut (Prop 13) they vote "YES." When asked to vote on huge, dedicated spending increases, some of the same folks vote "YES," again. The initiative, introduced by Gov Hiram Johnson (I think) in 1912, has been utterly perverted and needs major surgery. (Johnson was an "R" -- but they were different then!!)
4. I don't believe in trimming the budget. I believe in getting rid of something that people think they can't do without: e.g., high school. Let people figure out ways and I'm confident they will.
5. I could go on . . . . Thanks, Jeff, for a terrific article. At this moment, "R's" may be more to blame. Over the longer haul, almost everyone can share.
RON PAUL was our only shot but an ignorant electorate was blind.
The excesses in the social fabric in California have been well documented, discussed and understood by much of the country for more than the 30 years you go back to blame Ragan. We used to think our father was a curmudgeon for saying the country would be better off, if California was set adrift in the Pacific. He may have had point. With their votes against raising taxes, Californians are setting the politicians, with blame-game attitudes like yours, adrift. Excesses are radically shaken out of every system in much the same way.
Good luck to all citizens and subjects of the world we have been screwed by the banksters. Why doesn't the government go after the bankers easy they have been bought.
On Jun 28 08:20 AM john s. gordon wrote:
> california agriculture receives subsidies not only from the state
> but from the nation's taxpayers as well, in the form of irrigation
> water supplied to mammoth corporate farms at below market value.
>
> correction of this situation will generate increased costs to consumers
> at the store, and perhaps less cross-country trucking of produce
> if foodstuffs are produced closer to the point of consumption.
On Jun 28 09:51 AM Northstar10000 wrote:
> You are a nut case. Give me 1 year and I'll strangle the spending
> so not a dime will come from tax increases. First start with no lay
> offs of state workers. Everyone takes an automatic 10 percent reduction
> plus a complete and total wage freeze for 2009-2012. I'll bet no
> one state worker would leave. Next no benefits for Illegals, no medical
> care nothing. Spend the money shipping them back. Next illegals in
> jail will be escorted across the border freeing up jail space. Next
> No taxes on income over 1 million. Bet you don't want me to continue.
Support HR 1207 to audit the Federal Reserve.
Support HR 1868 to end the so called anchor baby problem.
I guess everybody who read Krugman's column blaming the Republicans (as usual) now thinks they have a handle on the problem. Because Krugman says so.
California is a liberal state, with Democrats in control of the legislature. Democrats have been in charge of the spending for a long time. That is why California is broke. Democrats could have put a halt to the insane, reckless spending any time they wanted to-- but they were too busy thinking up new ways to insanely and recklessly spend.
California's liberal Democrats have created lots of sanctuary cities for illegal immigrants, provided them with free health care at emergency room prices, and even given them college tuition at the same rate as California residents, while charging a much higher rate to anyone from Oregon, for example. Amazing that US citizens pay a higher rate to attend a state university in California than illegal immigrants do-- but that is the mindset of liberals. This sort of "compassion" gets very expensive fast.
The Democrats have bent the public over to give them a real you-know-what by rewarding unions with absolutely insane retirement benefits and pensions that are now helping to cripple the state.
Democrats have spent California into bankruptcy, despite continually raising the state income tax and sales tax, gas tax and every kind of consumer tax and fee they can think of.
The people of California, in the recent vote, gave a resounding "NO" to new taxes. The PEOPLE said no. The Democrats don't give a rat's ass-- they want to solve this like they solve everything-- by raising taxes.
California is already among the nations highest taxation states, and has an unemplyment rate of 11.5%. Only Democrats would have the brilliant idea to raise taxes under these conditions.
The people of California voted on how to resolve the budget issue. I know that doesn't matter to the liberals, but it should. It is time for Callifornia to live within its means.