California's Default Is Certain

| About: Alliance California (AKP)

“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.