No Bailout for the Governator: California's 'Fiscal Emergency'

Within the last hour, Governor Arnold Schwarzenegger has officially declared that California is in a state of 'fiscal emergency.'

State offices will now be closed 3 days out of every month and the legislature will have 45 days to send him a workable, balanced budget. If you didn't catch it, former Governor Grey Davis said on CNBC that he didn't expect banks to accept California IOUs.

There is still so much room to cut the fat out of California's bloated budget. Government in the Golden State has grown steadily over the last decade. Obama had better stay out of this mess. Voters will not appreciate the precedent of a Democratic President saving an important political state while leaving 49 others to fend for themselves.

Comments

[conceptwizard:]

Looking at California’s budget figures, projected state revenues for 2009 are $128 billion. At a reserve requirement of 10%, if California deposited all $128 billion in its own state-owned bank, it could issue $1.28 trillion in loans, far more than it would need to cover its $23 billion budget shortfall. To lend itself the money to cover the shortfall, it would need only $2.3 billion in deposits and about $2 billion in capital (assuming an 8% capital requirement). What Sheldon Emry wrote of nations is equally true of states:

It is as ridiculous for a nation to say to its citizens, ‘You must consume less because we are short of money,’ as it would be for an airline to say, ‘Our planes are flying, but we cannot take you because we are short of tickets.’”

As a card-carrying member of the banking elite, California could create all the credit it needs to fund its operations, with money to spare

Jul 01 07:38 PM

[Mr. Ed, Jr.:]

California will now print their own money (They are calling the currency IOU's). I wonder if they will put a picture of somebody on it, like the stuff the federal government is handing out.

This may catch on. Before long, California cities may be creating their own money-- I mean IOU's of course, because printing money is not allowed by the Constitution (Yeah, right, who cares ?)

Maybe other states will start doing it. This could get interesting.

Jul 01 09:15 PM

[TinyTim:]

Is it constitutional to pay my CA tuition with my parents Registered Warrants (IOUs)??

This is rubber meets road time in Cali. We get to see just how much leverage the special interests can buy when the money runs out.

I wonder who's telling the controller who to pay first when it isn't specified by law?

Jul 01 11:52 PM

[PastTense:]

The Bank of America has said it will accept California IOUs through July 10 for existing customers:
www.bizjournals.com/sa...

Jul 02 01:26 AM

[mallarde:]

California schools had over 1.5 million non-English speakers in 2007-08 school year. [Per Dept. of Edu.] Over 85 percent were Spanish-speaking.

Assuming 75% of these students were the offspring of illegal aliens or were illegal aliens themselves, the cost of educating them (using $8,000 per pupil per year) is $10.2 billion.

Therefore, the cost of educating illegal aliens' kids ALONE is almost 1/2 the budget deficit -- or perhaps even over 1/2 if you presume that a greater percentage of kids that can't speak English are the offspring of illegal aliens.



www.ed-data.k12.ca.us/...

Jul 02 04:01 AM

[bkdc:]

Funny how the world has evolved.

Article I, Section 10 of the US Constitution - No State shall... make anything but gold and silver coin a tender in payment of debts....

to California printing its own funny money...

California is the canary in a coalmine. If California had the power to monetize its debt like the US is doing by pressuring the Fed, it would. Our national government is in no better situation. Printing money is the same as defaulting on debt.

Jul 02 06:51 AM

[Ames Tiedeman:]

Maybe they can start by cutting some of the 235,000 state employees. Can they not get by on 200,000 or 150,000, or even less? A complete mess. I can only laugh at how pathetic that state has become. I thought diversity was grand? The state is not governable. It needs a Warden, not a Governor. Fill the place up with illegals from Mexico and you will not have an American standard of living. This is just part of the problem. The other part is too many liberals spend like drunks.. Let them rot. Obama should say "fix it yourself, you get nothing."

Jul 02 07:26 AM

[Al-USA:]

ConceptWizard, your idea is most intriguing. Would that not in effect, put the state of CA outside of the Union of American States? What binds the state to the union, if not the monetary system. By creating a state bank, it would create its own money supply, just like the "Federal Reserve", in my opinion.

Also, would that be legal? Just a thought.

Jul 02 08:11 AM

[User 305589:]

by that logic, every state and government in the world could just deposit amount X and then lend itself back 10 times as much. So nothing to worry about - happy days are here again. The trouble is that these other 9 times X still have to come from someone. And with trillions in wealth vaporised, yet more trillions borrowed by the federal and local govts, coprorations, homeowners (and foreign governments and foreign corporations) there is a shortage of capital emerging - on a global scale! half the world has already put up the money that uncle sam has needed to finance ever wider deficits over the past decades - now the foreigners increasingly need their funds to finance their own deficits.
The chicken of the legalised fraud called 'fractional reserve banking' are finally coming home to roost.


On Jul 01 07:38 PM conceptwizard wrote:

> Looking at California’s budget figures, projected state revenues
> for 2009 are $128 billion. At a reserve requirement of 10%, if California
> deposited all $128 billion in its own state-owned bank, it could
> issue $1.28 trillion in loans, far more than it would need to cover
> its $23 billion budget shortfall. To lend itself the money to cover
> the shortfall, it would need only $2.3 billion in deposits and about
> $2 billion in capital (assuming an 8% capital requirement). What
> Sheldon Emry wrote of nations is equally true of states:
>
> It is as ridiculous for a nation to say to its citizens, ‘You must
> consume less because we are short of money,’ as it would be for an
> airline to say, ‘Our planes are flying, but we cannot take you because
> we are short of tickets.’”
>
> As a card-carrying member of the banking elite, California could
> create all the credit it needs to fund its operations, with money
> to spare

Jul 02 08:17 AM

[battman:]

You idea makes sense only on paper. You're assuming they could put the whole 128 billion in the bank. How do they pay their bills if they're depositing the whole 128 billion? Unless I'm wrong, they are not operating at a profit. How do they service the debt from "lending themselves" the money? This is not solving their problem, merely delaying it, and if i'm not mistaken, taking on too much debt is what has gotten us into this mess in the first place.


On Jul 01 07:38 PM conceptwizard wrote:

> Looking at California’s budget figures, projected state revenues
> for 2009 are $128 billion. At a reserve requirement of 10%, if California
> deposited all $128 billion in its own state-owned bank, it could
> issue $1.28 trillion in loans, far more than it would need to cover
> its $23 billion budget shortfall. To lend itself the money to cover
> the shortfall, it would need only $2.3 billion in deposits and about
> $2 billion in capital (assuming an 8% capital requirement). What
> Sheldon Emry wrote of nations is equally true of states:
>
> It is as ridiculous for a nation to say to its citizens, ‘You must
> consume less because we are short of money,’ as it would be for an
> airline to say, ‘Our planes are flying, but we cannot take you because
> we are short of tickets.’”
>
> As a card-carrying member of the banking elite, California could
> create all the credit it needs to fund its operations, with money
> to spare

Jul 02 09:17 AM

[Jake Kimble:]

Great little tidbit. I believe that the credit crisis has led to a budget crisis among states and university endowments. This is a large cause of concern, b/c it puts Obama, Geithner, Bernanke and gang in a predicament to bail out the public sector. They said some banks were "too big to fail" but we know for sure Cali is too big to fail, so is any state for that matter. I feel that this can lead to a further pull back in the public sector, possible government job cuts, and will restrict our growth substantially in the coming months. Housing and manufacturing data may be improving, but income, unemployment and budget issues will hinder our country's performance for quite sometime.

I am diligently working on an article explaining the new "budget crisis" that explains issues with state budgets and university endowments. It will be posted in the next few days at BullishBankers.com

Jul 02 09:41 AM

[xsellside:]

When Government workers are furloughed, will anyone even notice?

Jul 02 10:17 AM

[readuntil:]

How much is spent on retirement benefits (cash, health benefits, etc) for employees under 65? How much on employees over 65?

How much is spent on 3 strikes?

How much is spent on overtime?

How much is spent on pension and health contributions to teachers unions, legislators, other state employees?

How much is spent on "silly" programs? What exactly is a "silly" program? Silly to one person, but not to another.

Someone mentioned the schooling illegal aliens costs about $10B a year. There's also the cost of policing, some basic healthcare, policing, and jailing (some of them do commit crimes).

Jul 02 10:45 AM

[KawKaw:]

Reality seems to indicate that voting for movie stars as executives is not the most prudent act. Let's face it, for some unexplainable reason The Gipper is known for greatness. Meanwhile, if you actually analyze the path that he put us on, there's no support for his infamous stature. And then there's the Governator. I love that guy. He was a greatest body builder of all time and loved most of his movies too, but com'on people, the Governor of California?

Jul 02 12:24 PM

[Ivan the Cr...:]

Mr. Ed, Jr. wrote:
"California will now print their own money (They are calling the currency IOU's). I wonder if they will put a picture of somebody on it, like the stuff the federal government is handing out."

Great idea. Why don't we vote for who. I suggest Bernie Madoff.

Jul 02 12:34 PM

[conceptwizard:]

Precedent for this approach is to be found in North Dakota, one of only three states currently able to meet its budget. North Dakota is not only solvent but now boasts the largest surplus it has ever had. The Bank of North Dakota, the only state-owned bank in the nation, was established by the legislature in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. The bank’s surplus profits are returned to the state’s coffers. The bank operates as a bankers’ bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It makes 1% loans to startup farms, has a thriving student loan business, and purchases municipal bonds from public institutions.

Looking at California’s budget figures, projected state revenues for 2009 are $128 billion. At a reserve requirement of 10%, if California deposited all $128 billion in its own state-owned bank, it could issue $1.28 trillion in loans, far more than it would need to cover its $23 billion budget shortfall. To lend itself the money to cover the shortfall, it would need only $2.3 billion in

deposits and about $2 billion in capital (assuming an 8% capital requirement).


On Jul 02 08:11 AM Al-USA wrote:

> ConceptWizard, your idea is most intriguing. Would that not in effect,
> put the state of CA outside of the Union of American States? What
> binds the state to the union, if not the monetary system. By creating
> a state bank, it would create its own money supply, just like the
> "Federal Reserve", in my opinion.
>
> Also, would that be legal? Just a thought.

Jul 02 01:56 PM

[conceptwizard:]

Precedent for this approach is to be found in North Dakota, one of only three states currently able to meet its budget. North Dakota is not only solvent but now boasts the largest surplus it has ever had. The Bank of North Dakota, the only state-owned bank in the nation, was established by the legislature in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. The bank’s surplus profits are returned to the state’s coffers. The bank operates as a bankers’ bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It makes 1% loans to startup farms, has a thriving student loan business, and purchases municipal bonds from public institutions.



Looking at California’s budget figures, projected state revenues for 2009 are $128 billion. At a reserve requirement of 10%, if California deposited all $128 billion in its own state-owned bank, it could issue $1.28 trillion in loans, far more than it would need to cover its $23 billion budget shortfall. To lend itself the money to cover the shortfall, it would need only $2.3 billion in

deposits and about $2 billion in capital (assuming an 8% capital requirement).




On Jul 02 09:17 AM battman wrote:

> You idea makes sense only on paper. You're assuming they could put
> the whole 128 billion in the bank. How do they pay their bills if
> they're depositing the whole 128 billion? Unless I'm wrong, they
> are not operating at a profit. How do they service the debt from
> "lending themselves" the money? This is not solving their problem,
> merely delaying it, and if i'm not mistaken, taking on too much debt
> is what has gotten us into this mess in the first place.

Jul 02 01:57 PM

[au godfather:]

time to legalize and tax marijuana!

Jul 02 03:14 PM

[MMMPARSLEY1:]

Concept Wizard,

California could put 128 billion in the bank if that was how much they were cash flowing each year.

Problem is that they have expenses; teachers to pay, police to pay, health care costs, government programs, state welfare, debt to service etc.

No business or state banks all its revenue. I think this goes without saying.

Jul 02 03:17 PM

[MMMPARSLEY1:]

Incidentally,

How do you run a state into the ground. It's basically a business which earns money for simply setting up shop and forcing you to pay them for doing nothing; for adding to absolutely no value. It's 100% pure profit.

The only obligation is to redistribute the money inefficiently.

It's a tough job, but somebody has got to do it.

Jul 02 03:20 PM

[nova:]

America is still in a state of complete denial of the reality regardless if it is the federal or state governments.

Unfortunately, the time is running out for printing fiat money. Yes, CA can print IOU but banks and businesses can and will refuse to accept these "monopoly money."

CA is a "leader." It is about to default first. The time for "politics as usual" is about over.

PS
I agree a state populated by mexican nationals will degrade to Mexican standards of living. "Liberal or progressive" Americans (whatever this shit calls it-selves) have enjoyed low-cost illegal workers labor, and now will pay for it in full.

Jul 02 04:39 PM

[jack kreg:]

Think about a major breakup of the state into 6 smaller states, all equal to the current national average. WOW thats outside the box.
3 major big city regions, San Diego/OrangeCounty, LA and SF, they could all be reasonable size states.
3 other inland empires, Southern Deserts, Central Valley and Northern coastal/inland, again all reasonable size states.
Then, let the regions live on their own tax bases. Consider LA, where they could tax movies, $5 ticket, to pay for the bloated LAUSD, and so on.
I actually like the idea.

Jul 02 07:17 PM

[Mr. Ed, Jr.:]

Ordinarily, breaking up something that has become "too big to fail" into little pieces might be a good idea. But the problem in doing that with California is that it would likely mean at least an additional +6 liberal US Senators.
And, even worse, they would probably come out of the current crop of California's political hacks.
We should just leave California completely alone, as a testament to liberalism.


On Jul 02 07:17 PM jack kreg wrote:

> Think about a major breakup of the state into 6 smaller states, all
> equal to the current national average. WOW thats outside the box.
>
> 3 major big city regions, San Diego/OrangeCounty, LA and SF, they
> could all be reasonable size states.
> 3 other inland empires, Southern Deserts, Central Valley and Northern
> coastal/inland, again all reasonable size states.
> Then, let the regions live on their own tax bases. Consider LA, where
> they could tax movies, $5 ticket, to pay for the bloated LAUSD, and
> so on.
> I actually like the idea.

Jul 02 08:48 PM

[ejhickey:]

Will the Federal Government accept California IOUs for payment of income taxes?

Jul 03 12:19 AM

[Allamad:]

Unless California addresses the outrageous pensions, benefits and subsidized health care provided to state workers and state retirees nothing will change. The Prison Guards union is the worst offender. The only way that happens is if the state threatens bankrupty to get the unions to "give back" some of their benefits. CALPERS promised to keep bringing in the money from it's investments to pay for this gravy train, but since the markets collapsed thats not gonna happen. So things have to get worse before they get better.
Actually California taxes aren't that high when you consider how much lower property taxes are compared to a number of other states like New Jersey and New York. Like U.S. taxpayers we have been spoiled by politicians promising lower taxes and ever more benefits through massive borrowing and phony bond measures.

Jul 03 11:14 AM

[Red Esprit:]

Concept Wizard has been drinking the Concept Koolaid. Why doesn't Kalifornia simply hitch a ride over to the People's Republic and talk to the Bank of China for a loan like our treasury does. If you are operating the state on a deficit basis, borrowing will only exacerbate the problem. You are assuming you have a temporary problem. You do not. You are assuming that the recession is abating. It is not. The Keynsian fools are now in control of both yours and the national ship of state. You are in for a very, very long slog.

Jul 04 09:15 AM

[KingofthePa...:]

Jct: There’s nothing wrong with small denomination California State IOUs if I or anyone else can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes and which everyone accepted as useful currency. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at youtube.com/kingofthep...
Too bad California State IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California State IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.

Jul 04 09:37 AM

[Lightway:]

California has issued IOU's in the past, in 1992. This is nothing new, so there is already a precedent established for the practice. It is NOT money, nor is considered legal tender by definition as described in the US Constitution. These are similar to bonds, since they carry a 5% interest rate.

There is also a huge line of credit currently available to the state, and the state debt is insured against default. What we really have here is a mismanagement of the budget which has been hijacked for political doomsday/fear-tactics grandstanding on the largest scale.

And sourcing Grey Davis (who was already wrong as Bank of America already said they would accept the IOUs) is not reliable. During the LAST crisis the state was in (Texas power companies price gouging California energy supply prices), Davis showed poor leadership, in which he was ousted and the current Governor was sworn in during a special election.

Jul 04 05:31 PM

[peugeot09:]

You must not have any children that need a great teacher, or think that we must have some sort of law enforcement present to keep the gangs, illegal aliens and drug dealers at least slowed down. How about lets just close all state offices and lay off all state employees! That should fix it all ... HUH? Geez people get real


On Jul 02 03:17 PM MMMPARSLEY1 wrote:

> Concept Wizard,
>
> California could put 128 billion in the bank if that was how much
> they were cash flowing each year.
>
> Problem is that they have expenses; teachers to pay, police to pay,
> health care costs, government programs, state welfare, debt to service
> etc.
>
> No business or state banks all its revenue. I think this goes without
> saying.

Jul 04 08:52 PM

[peugeot09:]

State offices will now be closed 3 days out of every month and the legislature will have 45 days to send him a workable, balanced budget.

This all sounds so nonchalant. Everyone had better check the Legislative calendar. Summer recess is from July 17th - Aug. 17th. Not having a balanced budget has never stopped these pathetic legislators from taking their paid vacations for the past 30+ years that CA has not balanced their budget by June 30th.

Everyone seems to be slamming ALL STATE EMPLOYEES and blaming them for this "Fiscal Emergency". What people need to understand is that the State employees who are taking the 3 days off a month are not the 6 figure incomes where the $$$ would count. They are the employees who only earn $3,000 a month to begin with. MORE of those than you know. Regular families with children in school, with utility bills, medical bills, rent to pay, rising gas, food and taxes just like the rest of you.

I am a CA State employee of 11+ years. I am also a single Mother of two. I am trying to keep my Son in our local junior college on my own. I am also caring for my adult disabled daughter. Over my years in state service I can count on one hand the number of years I have received a cost of living raise. I have seen my cost in heath benefits rise just like everyone else in America from $100 for 4 of us to $450 for 2 of us. I have had hours given to me on paper instead of $$$ for a year ???? RAISE. I have worked hard, furthered my education, and taken promotions in an effort to keep up with these rising costs. Over the past 3 years I have worked in an office where we are typically understaffed and work under a tremendous amount of stress to keep up with the overload of work. There was even a time when I thought I was doing myself a favor since I was learning a new job and would further my career experiences. FOR WHAT? All within the past 5 months I have had my pay fall back to what it was prior to my promotion I had worked so hard to earn. I still come to work, work hard, and then have to listen to how State employees are ALL sucking the life out of our STATE. I worked since February 2 days a month without pay.

What about all of our pathetic Legislators and our Governor who has his thumb pushed so tight on his PARTY that they can't think for themselves. There are so many avenues for bringing in revenue rather than taking it away. When you lower peoples income you are slowing down the economy. They don't have the money to spend so no sales taxes, they will lose their homes, so no property taxes but MORE foreclosures, can't afford to keep children in school so they will be forced to look for work ... more unemployed workers.

There is so much the Public doesn't know about what really goes on. Management golfing, lunches, traveling etc. Why not check into that sort of abuse! What about the cost of following the Governor around town? So what he doesn't get paid. It cost a fortune to just protect him.

I agree with the comment about these Actors going into politics. Just because they like being seen and are Narcissist doesn't mean they know how to run a State. Even though we all know our Governor and our President have a lot of advisers they normally depend upon. Acting CA Governor seems to making it clear that it is going to be either "HIS WAY or THE HIGHWAY"! He let everyone know early on as far back as Feb. that unless Californian's voted way he would veto everything and he has done just that without considering anyone's suggestions even when asking for suggestions he has no intention of considering anything other than WHAT HE WHATS regardless.

Acting Governor you really need to have someone else do the commercials about how beautiful our State is! We have lived in our beautiful State for many years before you were ever born and it was a much better place before you came on board.

State employees are counting the 16 months until you are out of office! It is too bad that your party will most likely be replaced as well since they have became your pawns.

Disgusted with CA Government.

Jul 04 10:04 PM

[kmanm:]

CA's budget problem is a poster child to what will happen to the country unless the government cut spending significantly and start paying down the national debt. Soon or later the government will start issuing IOU to China and US will be lead by politicians not from Washington DC but from Beijing. Remember, US is paying over half trillion dollar (and growing) on interest alone. This cannot be sustained and something has to give in. Be assure the first causality will be the dollar.

Jul 05 07:43 AM

[Marianthi:]

Yeah, all those lousy roads, schools, police stations and fire stations all have absolutely no value. Thanks for helping me see the light...


On Jul 02 03:20 PM MMMPARSLEY1 wrote:

> Incidentally,
>
> How do you run a state into the ground. It's basically a business
> which earns money for simply setting up shop and forcing you to pay
> them for doing nothing; for adding to absolutely no value. It's 100%
> pure profit.
>
> The only obligation is to redistribute the money inefficiently.
>
>
> It's a tough job, but somebody has got to do it.

Jul 05 03:36 PM