Washington's Dilemma: This Isn't a Recession, It's a Collapse

Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses. If cuts in police and schools don’t force DC off from its current position, then the math will. Because in many states the aggregate revenue losses and looming cuts to state payrolls will largely render the intended effects of federal stimulus as moot. Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse.

In Recession vs. Collapse published in March, this blog explained that in a normal recession existing savings are used to support government debt issuance and that those who remain employed increase their savings to also support government debt issuance. Neither phenomenon is at work today. Yes, the savings rate has soared in the US. But this has not resulted in any actual accrued savings. Because private sector debt came to define the internal structure of the US system, savings currently is little more than debt service. Also, bank purchases of US Treasuries are really just a result of the circularity of monetization. It’s just money from the FED being recycled into Treasuries. There is no privately driven growth of bank deposits, in the aggregate. Americans as a class are broke. What the savings rate more accurately measures is a collapse of consumer spending.

The internal composition of the US economic and financial system when it hit 2007/8 was very different than in previous recessions, even the severe recession of 1980/82. It’s this internal composition that’s now determinative, to the outcome. The sawdust of debt, and the monetization of assets rather than the production of goods, continually came to define the internal composition of the system. The economy cannot, therefore, express the same kind of resilience it has done so often, since WW2.

This is the core problem of this collapse and why the prospect for recovery is dim. Americans can’t actually rebuild the savings that the banking system needs to escape from the current mess. Individually, Americans are trapped by debt and cannot spend. In The Seigniorage Curse, I explain that one of the primary mechanisms for the hollowing out of the American economy over many years was the dollar advantage, which at first was earned. And then, came to be un-earned. By the time the US reached the 21st century, our primary manufactured product was debt, and dollars. Is it any wonder that once that system collapsed, that we quickly gave up 100% of the phantom job growth that had been sitting on top of the debt bubble? The current level of employment in the United States has now returned to the levels of June 2000. Enough said.

Washington apparently has a fresh dilemma on its hands, just inside of 6 months after the new administration came to power. Clearly the economic team, even though they were given almost 18 months to study the nature of the current crisis (starting in the Summer of 2007), incorrectly judged this recession to be of the post-war variety. Is that any surprise?

Nothing in the public record since the year 2000 indicates that Larry Summers, Ben Bernanke, or Tim Geithner understood that we had been building a skyscraper of private sector debt in textbook blow-off style, since the deflation scare of 2001. Now, two years after FED repair operations began on the broken credit system, and over 3 years since US real estate topped in price, major portions of the country are staring at further home price declines in most major markets. Indeed, it appears that the same macro cycle of the last two Autumns is about to repeat, with more waves of foreclosure, more withdrawals from savings and investment to pay for living expenses, and the attendant bailouts of financial institutions that comes around each time.

Washington can’t really take a pass on this situation. If the federal government decides it can wait while “the states rebuild their balance sheets and clean up their payrolls” (as in past recessions) they’ll be waiting forever. None of that is underway.

It’s no surprise therefore that the country is already being prepped for a second stimulus. Sure, Washington would like to act tough and tell the States to clean up their act. This is the moral hectoring version of Ben Bernanke saying in 2006 he doubts US real estate will ever decline year over year, or Treasury Secty Paulson saying that the front-end of the crisis was just a problem contained to sub-prime. We’ve seen this script before. If California issuing IOUs in a state where banks refuse to accept them doesn’t get the message across, nothing will. We are on the front end, not the back end, of a crisis within the States.

Unless Washington prints up dollars and bails out the States, of what use is Washington? Exactly what services can Washington provide, if California is let go? Left on its own, there would no doubt come an initial hooray from rubber-neckers and I-Told-You-So-ers. A newly broken relationship between Washington and the states might also quicken the pulse of anti-federalists, who feel we are long overdue for a tip in the balance of power. Perhaps it would all work out well. For the best, even?

In Washington today the annual budget deficit crossed the one trillion mark. In Sacramento, there is a 26 billion dollar shotgun hole in their budget. (One hopes that CALPERS is marking to market, because if they’re not, that would be a new liability for Sacramento to deal with). Meanwhile, Autumn approaches and whole range of rather nasty choices looms over the school system. Imagine living in a prime area of California and watching your house decline by 40%, your household income knocked for an initial 30%, and the after-school programs and town services get cut. Now throw some fees and tax hikes on top of that mess. For the coup de grace, imagine California voters sitting down each night to another wave of bailouts from Washington to financial corporations. Under those circumstances it seems quite unlikely Washington can say no, to the States.

Photos:

George Washington by Ike E. Morgan, Outsider Folk Art Gallery.

Barack Obama, Golf Swing Without a Club, Reuters.

FDR, via the Smithsonian.

Comments

[dondon:]

What will be the states' "pound of flesh" Washington will demand?

Jul 14 03:39 AM

[Steven Hansen:]

i suspect you are correct that at some politically motivated point, the federal government will step up and bail out the states. they will want the states to work their damnest in the meantime to correct the shortfall by as much as possible.

why should the citizens of wyoming be on the hook because california does not want to cut its services to save money? whatever happens, there will be a backlash from the states who do not need help.

Jul 14 03:51 AM

[Seth Chalnick:]

Excellent, informative, interesting post.

What's (not so) funny is that folks talk about the Great D as something that could never happen again... that we've learned lessons since then about opening fiscal policy, etc. and that we're a much wealthier blah blah.

But everywhere we look, it seems credit is tightening, and the problems are piling up. The government can encourage lending… but investors must ultimately decide how much to lend and at what premium. And the flaw of the encouragement method is that it makes smart money wonder if it is so smart to lend then what’s with all the encouraging?

History will look back at the recent downturn as the measly little subprime problem. Recently there was an article posted on SA entitled something like “Option Arms are the New Subprime”. It is a good piece but… closer to the mark would have been: “Prime is the New Subprime”.

Further, our supply chain these days are far more sophisticated and specialized… which seems to me that it would also have more vulnerability to break down.

We have way more mouths to feed these days, many of which are attached to bodies that lack the hands-on skills and perseverance of our forefathers.

The working class seems pretty in tune with what is happening here. They may not have the vocabulary to label lopsided charts… but the shoppers of these families are starting to complain over dinner that the expiration dates of perishable items they bought in the store today are set to go bad a day or two after tomorrow.

The only folks who don’t seem to see the 40% real estate correction coming… are the folks who still have the 40% left to lose.

If the huge jump to savings really reflects our collective poverty… then what happens when the real stimulators of the economy… the rich but not yet wealthy folks, who own these houses that are about to correct by 40%... what happens when they do finally get the memo?

Jul 14 04:11 AM

[Mike_In_Austin:]

"Unless Washington prints up dollars and bails out the States, of what use is Washington? " - This is a great question. Since there is a good argument that Washington is of no real use we should disband it.

Then, as the tax burden for the MASSIVE Federal Government decreases, the net income going to families in California would increase, and they would be able to pay more local taxes, which pay for the social services, and whatever else they want. By giving $10 to the Fed Gov, is $10 less of local state services.

Likewise, if there is always someone to bail you out, what is the case for a responsible government? California needs fiscal responsibility. I can't see that there can be an argument against that, other that responsibility sucks. It's much more fun to spend spend spend.

Decreased cost of housing, should make home ownership possible for those now trying to buy, allowing young people to stimulate the economy. You cannot bemoan the fate of Californians for 40% corrections, when 200% - 400% increases over 6 years proceeded it.

Jul 14 05:40 AM

[Moon Kil Woong:]

California's problems are systemic meaning even if you bail them out this year they will have the same problems next year and next year ad infinum. It is not something the Federal government can deal with long term because they have a similar systemic problem. The only difference is that they have no law barring them from infinite debt and depreciating the dollar to fund themselves (although they are constrained to whether or notr they can get anyone to fund their debt as is grows every year).

The Federal government should not have spent all its money on a spending plan, but should have passed a real stimulus plan that included reserve funds to aid State programs temporarily that needed funding, extend unemployment, invest in better mass transportation and communication lines, and other more stimulating, meaningful, and productive things than what we got. Rather, we got a whole lot of Democratic pork and more buraucrats that don't add much to productivity. To me, the Democratic porkus looks and smells about as rotten as the Republican pork everyone rallied against to start with.

We didn't need 2x the stimulus (we got almost 0). We needed a real stimulus program. What we really need is 2x better rule of law, 2x less wasteful government spending, and 2x more austerity.

That aside, Gergor Macdonald is right that States, counties, cities, and municipalities are where the rubber meets the road and government actually produces the communal goods and services you consume. A collapse in them is diasterous for public morale since people will clearly see the disconnect between giving so mucg to the Federal government and getting virtually nothing in return.

The federal government takes considerably more and delivers multiples of times less than any other government body, even when comparing the incredibly inefficient State of California. If anyone could have stimulated the economy it is your local cities and counties. The fact that it hasn't ended up there shows that your money is not doing much for you or the economy. Now we will all suffer yet another string of consequences caused by a loose spending inefficient federal government and a lax easy money Federal Reserve. I suppose that's why the founding fathers liked States rights so much.

Jul 14 05:41 AM

[User 353732:]

1. The Govt can and is making things worse; it has no affirmative capacity in July 2009 to make things better . Intellectual fraud, moral bankruptcy, the criminal misallocation and waste of national resources, the deliberate expansion of the parasitic class and serial deceits by the political bosses are not the basis for increasing consumer and business confidence. Without an increase in confidence , no economy, anywhere, esp. not one as complex and large as the US can possibly revive.
2. When fantasy money, worthless credit and extravangantly false promises intersect they create a vapor economy that starts to dissipate and blow away as soon as a sufficently large number of investors, households and businesses perceive and painfully experience the chasm between " our policies are working; we know what we are doing; things are getting better" and their daily reality of falling income, compressing profits, increasing tax and regulatory oppression and evaporating net worth.
Savings are rising , not because people and businesses are becoming more prosperous but because they are becoming more frightened by the day. The only way for savings to rise when income is declining is for consumption and long term risk investment in wealth creating activities to fall sharply. Consequently production falls and jobs disappear.
3.In July 2009, America finds itself with a shrinking and pessimistic new world middle class, a callous and self obsessed old world upper class and a third world Govt in Wash DC and in California, New York, New Jersey, Michigan, Illinois among other states.
The old world and the third world have coalesced among our elites to assault the new world. Under these circumstances it is inevitable that we get a steadily worsening economy and a steadily compressing middle class. It is not the States that are collapsing but the Middle Class.
4. It is a deep error to think that the State Govts are the units and motors of economic activity and wealth creation in the US: they are engines of destruction. It is the Middle Class that is the source of innovation, job creation and wealth expansion. It is now the manifest policy of our Govt at the Federal and State(eg California, Michigan, New York) level to fanatically fuel the engines of destruction while sabotaging the engines of creation.

Jul 14 05:57 AM

[markfl:]

140 years ago, the first Black Friday, a panic in 1869, led to a series of mishaps that ultimately caused the longest depression in American history. Nearly 60 years later, the same thing happened again. This recession has little in common with the typical business cycle and comparisons to 1982 are overrated. It is a once per 50-100 year cycle resulting from speculation and panic more so than the common recession typical of every decade since 1940. Some decades have had several recessions.

Note that even though the panics occurred in 1869 and 1929, the compounded effects took a few years to fully materialize.

Jul 14 06:11 AM

[Leftfield:]

Collapse. That does say it. It certainly shows in the figures government can't mark to magic like tax receipts. This is a collapse.
Governments at all levels are "engines of destruction" (User 353732) more than ever before. Their hubris has been built on sand. Any useful function of Washington in it's latest, most breathtaking power grab of TARP and the DC pork plan et al will be as it's supposed savior status in the public mind is finally reversed.
Yes, we send taxes galore to all levels; they all feature bloated, cross-functioning, ineffective waste galore with the arrogant, overpaid public servants we've come to know all too well. Insane debt levels preceded the bust, during the "booms!" What now?
Government has a long history now of clearly unconstitutional power grabs and a populace long trained to be shorn sheep. Interesting times.

Jul 14 07:12 AM

[Davewmart:]

Solutions are not to be expected from the crowd Obama appointed, who to a man failed to see the crisis coming and do not understand it's nature.
Here is Taleb on the real problem and how to deal with it:
www.ft.com/cms/s/0/4e0...
Swapping debt for equity would tread on the toes of those who finance both parties, and would not be popular with the real power, Goldman Sachs et als.

From the above discussion of the inevitability of a bail out of the states, the point at which the ability of the Fed to raise funds without huge interest rate rises may come into play.

Jul 14 07:36 AM

[atlasman:]

Enough with these bailouts, the solution solely lies on the cost side of the IS. Until this gets reset to a level of affordability, the problem will only get worse. I know this is politically unacceptable, especially to this crew, but it is the only long term answer.
-AM

Jul 14 07:47 AM

[doubleguns:]

We need to return power to the states. Reduce the fed by about 2/3 and taxes by 2/3. Allow the states to run the programs. Hire displace fed employees to run the programs at the states. Citizens can then decide what programs are important to them in thier state and vote accordingly. Let the Fed deal with our security, international trade/relations and Federal highways. Leave the rest to the states. I know this is not all inclusive but it is the idea.

Why should a lower middle class citizen in Mississippi or Alabama send tax dollars to California to allow the state to hand out money to the poor that end up living better than the person in Mississippi or Alabama. Put a moratorium of one year before becoming eligible for state welfare to keep people from moving to the best welfare states.

If California wants to spend millions on the sea otters fine but do it with California dollars not other states dollars. We have our own state issues we want to fund.

Bailouts will never correct the overspending that has occurred in all of the govts, state, fed, county, municipality. A reset is needed and should be allowed to occur. Bailout the unemployed until the reset is finished. Let industry stand on thier own two feet or get swallowed up by the stronger. The end result is a stronger industry and new ideas creating new jobs.

Jul 14 08:29 AM

[The Greates...:]

The pure facts are clear, people are not buy anything that they do not need. The recovery is a long way off, like all the jobs that have been lost since July 08. Like the old saying goes, “It is time to pay the piper.” The bailouts that went to the too big to fail did nothing for the US economy, throwing good money after bad money never works. The worlds economy is too global for any amount of bailout to work, it is simply too large of a problem. The over all global economy is going to have to go through a trimming down effect, “cutting the fat” so to speak. And that is why America is losing 450,000 jobs a month today, adding to the 10,000,000 lost over the last year. Everything (everyone’s economy and business’s too) that proceeded the July $147 a barrel peak price was based on using way too much credit to get by on. When the bubble burst, so did the global economy. A lot of money was made up to that point, but where did that money go today? All the run up in the cost of crude did was leave the world with higher prices for every single thing manufactured, shipped, barter or sold today.

Jul 14 08:56 AM

[Trane250:]

Political expediency will always win out over fiscal prudence. The dems will find a way of bailing out California, probably in the form of a loan or loan guarantees. This will only exacerbate the problem, but what the heck, we've been on the slippery slope for decades.

Jul 14 09:08 AM

[Vuke:]

Controlled collapse may be a better term. Russia, Japan, China et al are now issuing soothing words about the dollar, indicating that they now get it.

The dollar must now be destroyed in order to save it. Those mutterings of a fall crisis may well have some basis in fact.

Jul 14 09:12 AM

[huangjin:]

FDR said his administration was like the Bolsheviks and Nazis, except more orderly. However, a government built on the same principles will go the same way...into the ash bin of history. It's not the end of America, but it is the end of an 80-year experiment in socialism.

Jul 14 09:22 AM

[Charles Eis...:]

California's IOUs are the first step toward its own currency, which would of course have profound anti-federal implications. All that is missing is for them to be made legal tender (to pay CA taxes) and for the state to let them be fully transferrable. Of course, the federal government is loathe to let such a thing happen, having realized at least since Roosevelt's ban of "emergency currencies" in the 1930s its decentralizing effect. But the federal government might have little choice this time. Well, I guess it would: further centralization, expanding its financial involvement in state and local government to the further detriment of local autonomy, and forcibly binding all together on a sinking ship.

Jul 14 09:31 AM

[yellowhoard:]

California needs to melt down so the rest of the country doesn't.

If BO uses revenue from states that lived within their means to subsidize the irresponsible, there will be a political earthquake in the center of the country.

Jul 14 09:39 AM

[doubleguns:]

Charles Eis... The federal legal tender is nothing but an IOU also. It says "This note is legal tender for all debts, public and private" and of course we all know a note is a debt the same as a California IOU.

.

Jul 14 10:26 AM

[swaps:]

California should immediately merge with Mexico. The new combined nation should issue a new currency, the Cuero, which will solve all their problems.
A new currency will solve everything, just as merger of smaller banks into ever bigger banks, solved the earlier banking solvency problems.
That retired San Francisco fire chief who has a $240,000 annual pension plus a current $170,000 city budget job will, I am sure, be more than happy to accept full compensation in Cuero's rather than 50 percent compensation in U S. fiat dollars.
Bigger and better. It's the solution to everything. And so much more efficient. Jobs eliminated allows wages to be converted to debt service payments.

Jul 14 10:32 AM

[KIT:]

Any difference between bankrupt GM and California? Default would clear the state of debt. They would have trouble getting new bonds to float but would they need it. No one is going to reposess the bridges and hyways they ( bond holders ) will just eat the loss. Without debt service normal tax collection may be enough to make it work. Leason learned dont invest in States whos spending is out of control.

Hmmmm..... or countries?

Jul 14 11:33 AM

[KIT:]

Their own currency..... THE LOOPY


On Jul 14 09:31 AM Charles Eisenstein wrote:

> California's IOUs are the first step toward its own currency, which
> would of course have profound anti-federal implications. All that
> is missing is for them to be made legal tender (to pay CA taxes)
> and for the state to let them be fully transferrable. Of course,
> the federal government is loathe to let such a thing happen, having
> realized at least since Roosevelt's ban of "emergency currencies"
> in the 1930s its decentralizing effect. But the federal government
> might have little choice this time. Well, I guess it would: further
> centralization, expanding its financial involvement in state and
> local government to the further detriment of local autonomy, and
> forcibly binding all together on a sinking ship.

Jul 14 11:36 AM

[receipt:]

Subsidizing California's irresponsible economic decisions will produce more of them and lead to the collapse of the will to be responsible in the states that still are. The longer term result of not holding California accountable for its' stupidity will be to take down the rest of the nation with it.

Jul 14 11:37 AM

[Tony Petroski:]

I love the tone of this article: Praise the Americans for some bygone day when they exported real goods that people around the world wanted, and then chastise today's folks for exporting "debt and dollars." Further, excoriate the public for bingeing on debt and then point out that their new-found love of savings isn't savings at all--it's bankruptcy in disguise. Translation: We are all doomed, this is baked into the cake, and grab the guns and water bottles.

We have our work cut out for us but this in not "collapse" yet. Not judging by the number of misguided souls who were able to get to Michael Jackson's funeral--they are getting food, fuel and clothing from somebody other than the Chinese.

If the people are broke and the states are broke, then the federal government is broke. It won't help to have California get "bailed out" by taxing the folks of West Virginia and by inflating the currency. I still haven't figured out why so many Americans send their money to Washington D.C. and then think they will succeed by getting more than their fair share at the expense of some other state. I realize "West Virginia" was a bad example, Robert Byrd and his state suck up about 10% of the national product.

After Carter came Reagan.
After Obama:

Jul 14 12:06 PM

[yellowhoard:]

It's a credit card trap.

Make everyone in a room responsible for paying a single credit card bill, then give them all cards that draw on that account and see what happens.

Only chumps will act responsibly.


On Jul 14 11:37 AM receipt wrote:

> Subsidizing California's irresponsible economic decisions will produce
> more of them and lead to the collapse of the will to be responsible
> in the states that still are. The longer term result of not holding
> California accountable for its' stupidity will be to take down the
> rest of the nation with it.

Jul 14 12:13 PM

[WS1835:]

You just hit the Catch-22 of the situtation. The States want to avert bankrupty. The Fed's want to maintain their control of policy and the country as a whole. Neither wants to crash the entire house of cards.

Consider the options......

No bail-outs. Several large States collapse. Potential anarchy in some areas. Most States clean-up their act and life moves on. But the Fed's will look powerless and useless. Leads to some uncertainty regarding money. If California and other states don't get Fed bail-out in dollars, then IOU's may become a de facto second currency. This option causes considerable short term pain, and would significantly alter the current power balance between the States and Fed's. Could easily lead to a devolution of central political power for the first time since the War Between the States.

Give Bail-outs. Only way for Fed's to look like they are in charge and worthy of the tax money they collect, but provides no incentive for States to change status quo. Fed's will be trapped in endless bail-outs until the system completely collapes. Anyone's guess what happens then.

Very interesting times, but also very forseeable. This is the tail-end of 40 years of bad fiscal habits and power politics.




On Jul 14 03:39 AM dondon wrote:

> What will be the states' "pound of flesh" Washington will demand?

Jul 14 01:04 PM

[Socialism c...:]

"Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin."

Devolution? Author has it backwards. If the Feds bail out the Socialist Republik of California, what happens is merely that the day of reckoning is pushed off. The core cause of this systemic collapse, both in CA, and nationwide, is failed forays into socialism. We've been running deficits at the federal level most years for decades, due to socialist entitlements. Social (in)Security, Medicare/aid, FHA, Fannie, Freddie, HUD, etc., etc. It is unsustainable over the long term. The *only* reasons we've been able to push it off have been that the Feds have a printing press, and that the Boomer generation was in the producing age. Now that they are set to retire and the demographics are tilting the opposite way, the jig is up!

By NOT subsidizing failed socialist states, we'll end up with state governments being forced to get back to doing ONLY the things that they ought to be doing to begin with. That is NOT devolution, but restoration. I very much fear that the Feds will "bail out" the states, propping up socialism ever more -- and that will mean a few things (all bad):
1) Further growth in size and power of federal government, while further increasing states' dependence on the feds.
2) Ever-higher spending and debt to pay for these "bailouts"; this inevitably will lead to either high inflation or huge taxation. Same thing, really -- lower disposable income for the earner. The death of the middle class.

I can think of all kinds of motives for the Feds to step in (all related to grabbing more political power and more control over our individual lives, and restricting the ability of the middle class to become "independent" of "the machine")...and very few for them not to, even though "not" is in the best interests of most Americans.

Jul 14 01:16 PM

[Vuke:]

This is no longer just a Washington problem, it now belongs to the world. Washington can offer more and more paper, which will end badly in itself for everyone, or the world can step in to assist. Washington needs a lower dollar to assist in exports and job creation.

For some time the U.S. has been the engine of the world economy and it's now time for a little effort from the passengers. Trade is a two way street, not a roadway to perdition.

Jul 14 02:46 PM

[Mr. Ed, Jr.:]

California legislators have already shown the nation that they are not going to change their ways.

Despit a resounding "NO" from the citizens in the recent voting, the legislators keep trying to raise taxes in a counterproductive attempt at a quick fix. (They are prevented from doing so by the Republican minority, which is derided by clowns like Krugman for being obstructionists.) Raising taxes is all they seem to know how to do in California.

In the face of the state's biggest financial crisis, there is little effort to reduce any program that was put in place to benefit special interests. In fact, this very same legislature wants a new state law that will prevent any city from filing bankruptcy-- because that would put union pensions and contracts at risk. It is all about their own re-election, not the welfare of the state.

A bailout of California only lets the irresponsible state government (And the voters who keep re-electing them) off the hook. It will not solve anything, because the politicians have now shown us that they will not make tough decisions. It will just be business as usual.

If only to serve as a warning to other states, there should be no bailout of California.

It was the voters and politicians who created this mess, and they need to settle it among themselves. It is now high noon at the "Not OK Corral".

Jul 14 03:11 PM

[finye:]

I think you're pure dead magic and this, as usual, is absolute genius.

Jul 14 03:58 PM

[whidbey:]

Critical issue. I think the states will milk the Fed and Treasury via new bail-out programs. It is the next stimulus without having to say as much. The structural issue means that debt is built into the budget structure and can not easily be managed down. Same for revenues, fixed politically and not likely to grow.

The ship of state is in irons and can not break out to a new opportunity. They will ride the government down. Next horror show is China being found to have feet of clay.

Jul 14 04:15 PM

[KIT:]

At ten cents on the dollar maybe Canada can buy California making it our 11th Province. We can offer socialized Medical and California can give us much needed winter warmth.

Jul 14 05:33 PM

[reveigel@ms...:]

Government is the problem. And until this is admitted by government the situation will get worse daily. Chances of that happening, zero. So just tighten your belt and look for many long cold winters.

Jul 14 09:24 PM

[MWRjr:]

The only solution is to throw out all the career politicians and install term limits so that they will not have an incentive to buy votes for the next election.

Jul 15 12:07 AM

[leveraged:]

look at this guy's comments. This must be Cetin's long lost cousin.

Jul 15 12:26 AM

[Snitzer:]

Americans are slowly coming to the conclusion that Washington is the problem, not the solution. We have become too large and ungainly to govern from a central source of power, the federal behemoth is overrun by inept, corrupt and predatory individuals all attempting to carve out the choicest cuts of the Corpus Americana for themselves. No one is thinking of the greater good for the country, only for what they can steal away for themselves.

There will be change, but neither the politicians nor the pundits will see it coming, and there are no firm indications yet whether it will be a gradual collapse and rebuilding, or a violent cataclysmic inferno that burns out the rotten deadwood before the long awaited green shoots begin to peek out from under the rubble of whats left.

Actually I hope that our leaders, or maybe the next batch of leaders, can turn things around so that we achieve a certain amount of normalcy. Revolution and/or ruin sounds so depressing.

Jul 15 12:32 AM

[Alphameister:]

Only the beginning of the end (of the experiment with socialism), which may yet be a long, painful way off, tragically.


On Jul 14 09:22 AM huangjin wrote:

> FDR said his administration was like the Bolsheviks and Nazis, except
> more orderly. However, a government built on the same principles
> will go the same way...into the ash bin of history. It's not the
> end of America, but it is the end of an 80-year experiment in socialism.

Jul 15 01:35 AM

[Alphameister:]

He's already using revenues from locales that didn't vote for him to subsidize locales that did!


On Jul 14 09:39 AM yellowhoard wrote:

> California needs to melt down so the rest of the country doesn't.
>
>
> If BO uses revenue from states that lived within their means to subsidize
> the irresponsible, there will be a political earthquake in the center
> of the country.

Jul 15 01:46 AM

[Boxed Merlot:]

And may I re-iterate, objective redistricting without regard to demographically defined party affiliation.


On Jul 15 12:07 AM MWRjr wrote:

> The only solution is to throw out all the career politicians and
> install term limits so that they will not have an incentive to buy
> votes for the next election.

Jul 15 01:48 AM

[Dialectical...:]

The "experiment of socialism" in the 30's was in many ways capitalism bending its own rules in order to squelch the growing threat of revolution. When huge numbers of people are out of work, homeless, hungry, etc. the social fabric tears. Terrorists breed (as they have fewer compelling reasons to act with moderation) and dissenters grow in power. This is NOT to say that would-be revolutionaries in the 30's had better ideas or would have formed a more perfect country. No, the point I am making is that the powers that be were growing increasingly concerned about expanding anarachy and dis-satisfaction (the history is there in the factory and miner strike-riots).

Also, this crisis is repeatedly and everywhere described as being brought on by excesses of greed and capitalists gone wild (leveraged risks on steroids, buy-now-worry-later consumers, etc.). This is hardly the fault of socialism or socialist policies. True, the government has been overspending for decades. It may be a fly in our democratic ointment that promising people they will get more programs and not less is the way to stay in office (like bedtimes for children, responsibility may be prudent but is always unpopular.) We have multiple problems -- unchecked greed that put the whole economy at risk and a government that spends like a drunken sailor on shore leave are but two of them. But I disagree that somehow reducing taxes or eliminating entitlements would magically pave the way for an enlightened future. Were this true, the depressions of the 1890's and the 1930's would never have happened. We simply haven't found an economic process that is both stable AND efficient yet. I'm not sure one exists. But I don't simply blame the "socialists".


On Jul 15 01:35 AM Alphameister wrote:

> Only the beginning of the end (of the experiment with socialism),
> which may yet be a long, painful way off, tragically.

Jul 15 02:32 AM

[derryl:]

In a "recession" the most financially vulnerable (i.e. overly indebted) firms and individuals go bankrupt and their assets are bought up at bargain prices by other people who still have money. Those assets have value as consumable economic goods and as income generating financial investments (rents, dividends, profits) in a still overall functional financial economy. Lenders write off the debts of bankrupts so the system's total amount of debt is reduced. Then we start up again on the next debt runup. Yeehah!

In a "collapse" there is so much debt at all levels public and private that even investment assets at bargain prices offer no guarantee of income generation. There is a relatively small number of rich people who have mounds of cash (not nearly enough to liquidate the system's debts, even if you took it all), but they're too smart to invest it in a collapse and they have no need to spend more than a minute fraction on consumption it so it doesn't do the economy any good.

Who can pay the rent on the discount priced McMansion you just bought from the bank? Who will buy the retail goods in the bankrupt store you scooped up? Those assets have economic value; somebody would like to live in the house or own those goods for free; but they have limited or no financial value because nobody who wants them has money to pay.

The bank itself is insolvent and is only saved from bankruptcy by the good graces of the regulators who relax solvency standards (letting bank assets be valued at book rather than market) and regulatory capital requirements 30:1? No problem!). And you can't liquidate--convert assets to cash--if nobody has any cash and if those who do won't part with it. The only way to get more money to enough buyers is by more bank loans, more debt, but systemically unpayable debt is what is causing the collapse so more debt cannot be the solution.

The 1930s was a collapse. The economy could not get itself out of that financial hole. It took colossal WWII government spending, and borrowing, to restart the economy after that collapse.

But this time we are already starting from a position of all the debt that has accumulated since the 1930s collapse, including the War debt that was never actually paid off but was transferred from the gov't to private individuals as we financed the post-war recovery and vast economic expansion. With that economic expansion came financial expansion, which means "bank loans", which means "debt". All those neat rows of 1950s houses and stores and enterprises were financed with new private debt.

What is collapsing this time is the illusion of sustainability of a central bank sponsored fractional reserve monetary system where all money begins its existence as a bank 'loan', which is a debt, which must be repaid with interest. "It's the monetary system, stupid!" But it's also human nature. If we didn't have this catastrophe-causing monetary system we'd figure out some other way to fuck ourselves up.

Jul 15 02:53 AM

[Johann Galt:]

You've got style.


On Jul 14 03:58 PM finye wrote:

> I think you're pure dead magic and this, as usual, is absolute genius.

Jul 15 09:52 AM

[sara123:]

Yes, the Democrats will bail out the blue states where they have power pay backs to make.

It is not going to do any good for the next budget year when Obama bails out the blue states' debt for the current budget year. The next year's debt will only be larger due to the continuing collapse of State revenues and more and more people being added to welfare benefits. We have a government machinery built up to the hilt of a fake soaring market at the State and Federal levels and they are not going to cut back enough to offset the loss in revenue.

Obama is busy spending like a drunken sailor; socializing as much of the economy as fast as he can get away with - and he's broke. No doubt he will pretend to bail out the States with money he does not have and use the opportunity to consolidate State rule into the White House. No matter what, Americans are royally screwed. The economy HAS collapsed.

Jul 15 03:23 PM

[commoinsens...:]

states like california and new york have been susidizing backwater s*** holes like alabama and mississippi for decades....


On Jul 14 08:29 AM doubleguns wrote:

> We need to return power to the states. Reduce the fed by about 2/3
> and taxes by 2/3. Allow the states to run the programs. Hire displace
> fed employees to run the programs at the states. Citizens can then
> decide what programs are important to them in thier state and vote
> accordingly. Let the Fed deal with our security, international trade/relations
> and Federal highways. Leave the rest to the states. I know this is
> not all inclusive but it is the idea.
>
> Why should a lower middle class citizen in Mississippi or Alabama
> send tax dollars to California to allow the state to hand out money
> to the poor that end up living better than the person in Mississippi
> or Alabama. Put a moratorium of one year before becoming eligible
> for state welfare to keep people from moving to the best welfare
> states.
>
> If California wants to spend millions on the sea otters fine but
> do it with California dollars not other states dollars. We have our
> own state issues we want to fund.
>
> Bailouts will never correct the overspending that has occurred in
> all of the govts, state, fed, county, municipality. A reset is needed
> and should be allowed to occur. Bailout the unemployed until the
> reset is finished. Let industry stand on thier own two feet or get
> swallowed up by the stronger. The end result is a stronger industry
> and new ideas creating new jobs.

Jul 15 04:43 PM

[mr freddo:]

Americans, Californians, our problems are solvable over the long run if not in the short run.

In life, one is rewarded for creating, whether a broadway play or a big mac. Our world economy is based on the interactions of those created values. Those that create extraordinary value are rewarded extraordinarily.

In America and California, in an effort to maximize our comparative advantage, we funneled our very best and brightest minds of our generation into finance. The engineers were shunned, and engineering jobs were exported. Thus we forgot what we knew while teaching the rest of the world how to catch us quickly.

We weren't too concerned. We kept churning out new financial products and believed that the financiers are the real masters of the universe.

What we now realize is that a great deal of the growth in finance was based on false premises. 1. That you can take a basket of turds, squeeze hard, and create diamonds. 2. That you can alter the basis rules of personal finance and own a million dollar home with an income of $50 thousand a year. 3. That you can allow bankers to become salesmen and still not lose capital.

To return our state and nation to greatness, we must immediately begin to build our future businesses that will create real prosperity for the 21st century. These companies will be technologically driven, will rely on domestic employment, and will start from nothing to become dominant world beaters in 20 years. They will serve as platforms of innovation spinning off new companies and creating new markets.

These new companies will create a new class of wealthy capitalists, men and women trained to make money by taking risks, applying technology, and building strong stateside businesses that act as engines of employment for our citizens.

So let's stop whining about who is to blame. Why we failed. Why we are doomed. WA WA WA!

Let's start moving toward the solution, the answer, the bright light. Our clueless legislators, should start asking venture capitalists, entrepreneurs, scientists, and engineers what they need to get the pipeline of new companies rolling now so that we will have successful, exciting world beaters that employ our children and grandchildren.

Jul 15 08:16 PM

[Crocodilian:]

Washington _should_ bail out the States. If one believes in the logic of counter-cyclical spending in a recession/depression, then it makes no sense to have the Federals put money into new programs, as the States fire people and make cuts.

The easiest way to put Federal dollars into, say, highway infrastructure, is to make sure that CalTrans doesn't shut down projects (which they will do). These projects are not merely "shovel-ready" -- they're actually under way, employing people today who're paying mortgages and so on. Far better to keep those projects going, than to have California shut them down, and to wait for some Federal project to start "later".

In fact, one could make a case that _all_ stimulus spending should be done through the states. Its also a politically far more palatable way of doing a "second stimulus". The votes probably aren't there in Congress to do another _Federal_ stimulus package-- but a State bailout would be much easier (which California Reps would vote against it?)

Jul 15 09:56 PM

[perceptions...:]

Oh, I think you are right, the economic engines are missing, on a few cylinders.

And, the fuel of economic creation is being destroyed.

The question is, have we got the capacity to see past today and change the future?


On Jul 14 05:57 AM User 353732 wrote:

> 1. The Govt can and is making things worse; it has no affirmative
> capacity in July 2009 to make things better . Intellectual fraud,
> moral bankruptcy, the criminal misallocation and waste of national
> resources, the deliberate expansion of the parasitic class and serial
> deceits by the political bosses are not the basis for increasing
> consumer and business confidence. Without an increase in confidence
> , no economy, anywhere, esp. not one as complex and large as the
> US can possibly revive.
> 2. When fantasy money, worthless credit and extravangantly false
> promises intersect they create a vapor economy that starts to dissipate
> and blow away as soon as a sufficently large number of investors,
> households and businesses perceive and painfully experience the chasm
> between " our policies are working; we know what we are doing; things
> are getting better" and their daily reality of falling income, compressing
> profits, increasing tax and regulatory oppression and evaporating
> net worth.
> Savings are rising , not because people and businesses are becoming
> more prosperous but because they are becoming more frightened by
> the day. The only way for savings to rise when income is declining
> is for consumption and long term risk investment in wealth creating
> activities to fall sharply. Consequently production falls and jobs
> disappear.
> 3.In July 2009, America finds itself with a shrinking and pessimistic
> new world middle class, a callous and self obsessed old world upper
> class and a third world Govt in Wash DC and in California, New York,
> New Jersey, Michigan, Illinois among other states.
> The old world and the third world have coalesced among our elites
> to assault the new world. Under these circumstances it is inevitable
> that we get a steadily worsening economy and a steadily compressing
> middle class. It is not the States that are collapsing but the Middle
> Class.
> 4. It is a deep error to think that the State Govts are the units
> and motors of economic activity and wealth creation in the US: they
> are engines of destruction. It is the Middle Class that is the source
> of innovation, job creation and wealth expansion. It is now the manifest
> policy of our Govt at the Federal and State(eg California, Michigan,
> New York) level to fanatically fuel the engines of destruction while
> sabotaging the engines of creation.

Jul 15 10:00 PM

[hazard12:]

None of this is relevant. Your man obama was showing his connection in germany and russia to the plan to finish the old states of America. After this financial nightmare stuff always comes their "war in the middle east" and a local attack. same game different chapter. better get out of the banks, grow some food.

Jul 15 11:18 PM

[User 448704:]

IT all started this round with NAFTA. the goverment sent all the jobs overseas, in my county we have lost several thousand jobs because of this...The goverment needs to repeal the NAFTA and tax the hell out of companies and countrys that remain overseas bringing cheap goods to sell in America... All these so called jobs that the stimulas supposed to have created or low wage jobs...the lost jobs are the high end wage jobs...How is it suppose to turn the country around if a man makeing $100k a years loses his job but has to take one that makes $30k a year.....but wait...they created a new job........give me a break................

Jul 16 02:03 AM

[Archman Inv...:]

What a fantastic piece!
I forwarded it to a few of my friends.
I am not sure how, if and when, we get out of this mess, if at all.

One thing I do know, in the coming few short years Americans will be working the first 7 months of every year, just to pay the government, and the remaining 5 months worth of pay that is left will barely be enough for the average American just to survive!!

But again, everything is really in the hands of average Americans. They do have a choice: Take back their country and realize that "they" own the country, not the government
OR
Continue to be brainwashed by the media, thru the carefully orchestrated reality shows, social networking sites, twitter, etc, and other useless items that make a select few wealthy, and whose sole aim is to keep dumbing down every American it can.

compdivplan.com

Jul 16 08:01 AM

[lynda watson:]

Obama and his administration are following the same path that California has been following, that has worked out so well for that state. Overregulation ( business and enviromental ) , too much and too big government . O and don"t forget the unions !

Jul 16 08:17 AM

[Sober Realist:]

The solution is very simple ... a worldwide jubilee. As Matt Simmons, the peak oil guru, remarked last year, " the economic crisis is a paper problem that can be fixed with paper just like all the other countries did throughout history."

Jul 16 08:29 AM

[bricki:]

California is perfectly capable of fixing it's own problems. It has the 8th largest economy in the world fer chrissakes. Just dig a big trench around Sacramento, fill it with oil and set it on fire. Done.

Jul 16 08:58 AM

[ebworthen:]

Exactly, very well said.

It's the middle class who has been taken to the wood shed.

The parasitic class and the elites are desperate to maintain their grip on power and their symbiotic vampirism of the middle class.

Only problem is, when the victim dies or fights back, the party is REALLY over.


On Jul 14 05:57 AM User 353732 wrote:

> 1. The Govt can and is making things worse; it has no affirmative
> capacity in July 2009 to make things better . Intellectual fraud,
> moral bankruptcy, the criminal misallocation and waste of national
> resources, the deliberate expansion of the parasitic class and serial
> deceits by the political bosses are not the basis for increasing
> consumer and business confidence. Without an increase in confidence
> , no economy, anywhere, esp. not one as complex and large as the
> US can possibly revive.
> 2. When fantasy money, worthless credit and extravangantly false
> promises intersect they create a vapor economy that starts to dissipate
> and blow away as soon as a sufficently large number of investors,
> households and businesses perceive and painfully experience the chasm
> between " our policies are working; we know what we are doing; things
> are getting better" and their daily reality of falling income, compressing
> profits, increasing tax and regulatory oppression and evaporating
> net worth.
> Savings are rising , not because people and businesses are becoming
> more prosperous but because they are becoming more frightened by
> the day. The only way for savings to rise when income is declining
> is for consumption and long term risk investment in wealth creating
> activities to fall sharply. Consequently production falls and jobs
> disappear.
> 3.In July 2009, America finds itself with a shrinking and pessimistic
> new world middle class, a callous and self obsessed old world upper
> class and a third world Govt in Wash DC and in California, New York,
> New Jersey, Michigan, Illinois among other states.
> The old world and the third world have coalesced among our elites
> to assault the new world. Under these circumstances it is inevitable
> that we get a steadily worsening economy and a steadily compressing
> middle class. It is not the States that are collapsing but the Middle
> Class.
> 4. It is a deep error to think that the State Govts are the units
> and motors of economic activity and wealth creation in the US: they
> are engines of destruction. It is the Middle Class that is the source
> of innovation, job creation and wealth expansion. It is now the manifest
> policy of our Govt at the Federal and State(eg California, Michigan,
> New York) level to fanatically fuel the engines of destruction while
> sabotaging the engines of creation.

Jul 16 10:11 AM

[spald_fr:]

On Jul 14 03:58 PM finye wrote:
>> I think you're pure dead magic and this, as usual, is absolute genius.<<

Really not bad for your first post.

Jul 16 12:08 PM

[Dirtnap:]

Many in this thread have expressed the sentiment that a bailout is a worthless effort in trying to save the economy, and they are right. Taxpayer-subsidized bailouts eliminate the very risk-reward principles upon which a functioning market economy should be based.

Many here are also blaming our government, and they are right to do so. The legislative and executive, both during the Bush and Obama terms (and Clinton, and Bush I, and Reagan, etc.), have been all too eager to line up to support the corporate bankers. but let's not spare the blame to the finance industry, who in essence demanded bailout funds to attempt to mask their insolvency, under the threat of withholding credit. Keep in mind that due to fractional reserve lending laws, the Fed controls the money supply, but the banks get to issue credit up to 10 times the amount they hold in reserve, essentially giving private finance control over 90% of our money supply.

Now that times are hard, we aren't "trimming the fat" as one poster said in the proper way. we are bolstering upper class salaries and capital gains, while eliminating middle and upper-middle class jobs which may actually have productive output.

Jul 16 01:49 PM

[Bjarne Jensen:]

Boxed: Better yet, redistrict specifically to create evenly balanced voter demographics. That way the only people who can get elected are those who can attract centrest voters of all parties, ie compromises that work!


On Jul 15 01:48 AM Boxed Merlot wrote:

> And may I re-iterate, objective redistricting without regard to demographically
> defined party affiliation.

Jul 16 02:50 PM

[mwfall:]

government workers are raping the taxpayers with over-inflated benefits/pensions. bettter get of the union clowns before it's too late.

Jul 16 03:16 PM

[Bjarne Jensen:]

I found this article very interesting. I will attempt to answer the implied question: I do not believe our economny will ever return. A look at world economic history suggests that we are in the process of losing the economic high ground to China and our economy is not likely to improve any more than England’s' economy improved when they lost the high ground to us or Spain’s' economy when they lost the high ground to England.

Given the amount of debt overhang we have, if we lose the economic high ground our economy will soon look like Mexico's.

Can't happen here? The three previously mentioned world economic transitions were caused by the same two conditions: The losing country had accumulated more debt than their economy could support and the losing country had such incredible hubris they were unable to see it. I'm afraid that the debt funded spending spree is over and we're going to pay the price!

Jul 16 03:18 PM

[craigdc:]

If California wasn't spending more than it can afford to spend, California wouldn't have a problem. The same simple logic applies to the federal government. The problem arises when both entities think they are entitled to borrow and spend as much as they want using the taxpayers to co-sign the loan.

We really need to have the simple minds stop admonishing us to accept business as usual.

Jul 16 03:42 PM

[hksche2000:]

Just 2 points:
CA & TX march to different drummers than the rest of the country and they (say they) are grown ups and big enough to do without the rest of us. I think the rest of us should giv'em the chance to do what they'll do anyway, that is not care what the rest of us have to say. They will have to do some unwinding over the next few years to get their spending/cash flow in line with their (still immense!) wealth and richess; but they'll do just fine.
As far as righting the financial fortunes of the less well healed rest of us, front loading the recovery with stimulus money is not a problem as long is the money is strictly earmarked AND monitored to be used for 2 things and 2 things only:
1. productive investments that will pay and keep paying for themselves (even exponentially!) for years to come, like (among others) modernizing/replacing our medieval power grid, our air/ground transportation systems and harnessing boundless THERMO-solar energy sources to secure our exponentially growing energy needs while extricating ourselves from our unbearable hostage situation to all our oil producing "friends" around the world. (Think what FDR's great FWY/TVA projects are srtill doing for us today!).
2. the 2nd essential criterion for borrowing/spending money (instead of saving it) now is that this money MUST create jobs that pay enough from the start so people can make a decent living; no more but also no less. No Wallstreet jobs or pay included. Job generating efficient SB's (not behemoth corps) should be the primary loan recipients, exactly the opposite of what is currently happening.
Bill Clinton, after first paying off our consideralbe budget deficit when he came into office, then left us a multitrillion dollar budget surplus on his way out of the oval office, pretty much by stimulating economic PLUS job growth (filling fed/state tax coffers and minimizing unemployment outlays) and, importantly, matching this with PAGO fiscal responsibility.
Beats throwing good money after bad into black holes like unsavory banks, brokerages, insurances and "dinosaur" car manufacturers that, after restructuring/bankruptcy, are still not getting; same old cronies, same old dogs trying to learn new tricks at the helm, buzzing around in their private jets, helicopters, yachts or golf carts. Duh! And I thought now that we owned all of this as taxpayers, we should have something to say about this.?!

Jul 16 03:46 PM

[ManFromMars:]

Did not read all comments, so what I have to say may be redundant, but;

What a silly commentary. If the federal government bails out California, NY,NJ etc. then why wouldn't better run states also decide to run deficits to get free money - prudent states can not be expected to stand by and bailout the irresponsible. Texas should buy new cars for all its residents and bill DC. Hay, maybe that's the solution - at least cars could be produced domestically stimulating the economy. Better than wasting money on teachers that don't teach and lazy public employees.

This country is screwed by its people who want something for nothing. Trickle up poverty brought to you by your own irresponsible behavior.

Jul 16 04:21 PM

[Henry's father:]

Just as with many of the bailout proposals, we need to restructure the state into a "bad" California and a "good" California. Into the bad California would go the debt-laden government, overpaid bureacrats, and welfare recipients. The good California would be comprised of the remaining working class. With this plan, the nimble and efficient good California would be back on its feet in no time contributing to economic growth, while the bad California could be sold off in pieces to the highest bidder.

Jul 16 04:56 PM

[BOBO101:]

Seems like there is a whole of political partisanship and sloganism and not much fact. For starters, Califorina only gets back 78 cents of every federal tax dollar that gets collected. And, New Hampshire, often called the most socialist state gets a meager 71 cents back.

As far as the trend toward socalism, the last several years seems to have been a new version, trickle down socialism, where the federal government bails out foolish companies that are to big to fail and expects it to trickle down to middle america.

Granted, government has been growing year after year regardless of who is in office. The last time the federal government ran a budget surplus at the turn of the century at a time when the federal government was almost totally dysfunctional, with a Dem. president busy defining "sex in the biblical sense" and the country and a Repub. Congress wondering how to impeach him. Maybe the president should take all of congress on a long holiday to China to get us out of this mess.

Jul 16 05:01 PM

[grh1212:]

You are correct that California's problem is self generated. I lived in that state until my late 30's. During all that time the state had responsible governance until my last couple of years there when the sheeple voted the entertainer into the governor's seat. St. Ronnie's notion that you don't have to pay for what you spend landed with a vengeance and proposition 13 followed. Now the new entertainer will not agree to a tax increase and the lege won't agree to filling the gap with service cuts alone. What to do?

Obviously they should have to face the consequences of their fiscal irresponsibility. Let them default if that is their choice - and it would be their choice, not Washinfton forcing them into bankruptcy. The feds must not let themselves be extorted or all the other states will understandably follow.


On Jul 16 08:58 AM bricki wrote:

> California is perfectly capable of fixing it's own problems. It has
> the 8th largest economy in the world fer chrissakes. Just dig a big
> trench around Sacramento, fill it with oil and set it on fire. Done.
>
>

Jul 16 05:04 PM

[Crocodilian:]

On Jul 16 04:56 PM Henry's father wrote:

> Just as with many of the bailout proposals, we need to >restructure the state into a "bad" California and a "good" California. Into the bad California would go the debt-laden government, overpaid bureaucrats, and welfare recipients. The good California would be comprised of the remaining working class.
----------------------...

And when "Good California" dials 911 -- who answers the phone?
When they want to send their kids to school-- who teaches them?
When there's a pothole in their highway-- who fixes it?
When a resident of "good California" loses his job-- does he get "deported" to "bad California"?

I hear America whining -- "I want stuff, but someone else should pay for it".

Jul 16 05:13 PM

[John Bowman:]

Maybe the solution is for the 51 States to secede from California (and Washington D.C.) instead of the other way round.

Jul 16 06:09 PM

[steveowinlow:]

The premise that the US has been conducting an "80 year experiment in socialism" is debatable. However, for the sake of argument, let's accept your premise. How then do you explain the fact that this "experiment" has coincided with the greatest increase in power and prosperity ever experienced by any nation in the history of the world? Maybe "socialism" works.


On Jul 14 09:22 AM huangjin wrote:

> FDR said his administration was like the Bolsheviks and Nazis, except
> more orderly. However, a government built on the same principles
> will go the same way...into the ash bin of history. It's not the
> end of America, but it is the end of an 80-year experiment in socialism.

Jul 16 06:29 PM

[nobby73:]

It doesn't matter what you call it - bailout, stimulus, rescue package, it is simply debt. Government debt is a misnomer, it is the people's debt, taken out by the government. The obligations now resting with all Americans are quite simply far too high and can only be managed via default or devaluation. As a consequence, the US economy needs to become self-reliant. The addiction is debt and foreign investors are enabling the habit, but for Americans to become free again, they need to walk away from the obligations taken out in their name. Of course, this means that the purchasing power of the Dollar will be significantly hit, with oil rising. Therefore, there needs to be huge cultural changes, not the least of which being a touch of humility.

America as a country, or even a philosophy, cannot survive on its current course. The changes will be dramatic and will shake up the whole world, but each citizen needs to understand his life has been mortgaged many times over and as it stands his freedom is illusory.

Time for a declaration of independence from the federal government and Wall Street cabal?


"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness. "

Jul 16 06:39 PM

[shortbaldman:]

Washington can't afford to let California collapse. They're damned if they do and damned if they don't.

If Washington does allow California to collapse, it will be the beginning of the end for the U.S. You don't believe that the US will go the same way as the Soviet Union did, and break up into several pieces? What would stop it? When the money well goes dry, there will be huge disincentive for the 'rich states' to be disadvantaged just so the 'poor states' can be propped up.

If Washington doesn't allow California to collapse, they will have to start (actually in truth, to continue) printing huge piles of dollars. This will lead to the collapse of the dollar, and a great big world of hurt as imported goods' prices go through the roof. That of course will be like the situation in Russia after Communism fell and the rouble dropped to about a tenth of its value within a very short time. How would $30 a gallon gas affect your lifestyle?

Jul 16 06:41 PM

[Sovestor:]

Interesting argument. US government is an optimist and hence, need to stay optimistic during ups and downs regardless of reality.

Jul 16 07:26 PM

[KalKan:]

When the dot com bubble burst in '01, 300,000 well educated people who were contributing to the most valuable sector (high tech) of the world's 8th largest economy left, and most never came back. Within an 8 month period the unemployment rate in a very clustered group of zip codes went from 2% to 8%.
We are again experiencing brain drain, but the brain drain runs across all sectors. The middle class in Kalifornia is fed up. The effective unemployment rate exceeds 16% - well beyond depression levels. We pay the third highest business tax rates in the country and the second highest income tax rates. www.taxfoundation.org/...

The middle class is already leaving in droves and I will be one of them this time. Kalifornia will quickly become a land of a handful of uber rich and millions upon millions of social parasites - both legal and illegal. The only growth industries will be in remote controlled trebuchets, surveillance cameras, and guns.

Jul 16 07:28 PM

[Alfredo Mar...:]

I really don't think collapse is the right word for what will happen if the federal government doesn't bail out California. There will simply be severe cuts in government spending. Their spending will be more in line with how other states that somehow manage not to implode.

Anytime there's a shortfall in a state's budget, the bureaucrats threaten to open up all the prisons and fire all the police officers., but there's plenty of fat to trim of California's state budget.

If other states can get by, and with much lower tax rates, than California can to. It just needs to hit rock bottom before real reforms are made.

Jul 16 09:02 PM

[Brad Johnson:]

You're going to see a political sh!tstorm if Obama bails out California.

EVERYONE hates California (even Californians), and they will be pulling out the pitchforks and torches if the federal government bails out the most irresponsible state in the Union.

Jul 16 09:05 PM

[Big Bubbette:]

A large part of the problem with California, New York, New Jersey and other liberal Democrat run State Legislatures is that they have built so many entitlement programs and government unions they have run out of other people's money.

Here in California Gray Davis gifted the prison guard union 100% pay on retirement available to qualified employees at age 52. This gift has since been extended to other government unions. Gray Davis was recalled over a $15.00 proposed hike to the license fee, but it was really to cover the tip of this ridiculous retirement program. Davis was told at the time that this would bankrupt the State.

Obama and Biden are expanding unions. They gifted them parts of the auto makers instead of letting them go to bankruptcy court to get shed of them. In California the City of Vallejo declared bankruptcy to cut the government union contracts. The California Legislature is now trying to ban Cities from having the bankruptcy option at the behest of the government unions.

Obama mandated that all work programs be forced to pay unions wages. The reason is that unions cannot compete with non-union contractors. This little tird will cost the US taxpayers 20% more on all programs. 20% less people employed and 20% less work accomplished.

Obama twisted Arnold's arm over laying off government workers and threatened to withhold Federal funds.

Then there is the illegal alien issue. And I know people say they contribute, etc. but the fact remains that until we end the flow of illegals into this Country and cut them off the entitlement payroll and medical care we will really never know how much that is costing us. Both parties are responsible here. The republicans want the cheap labor and the democrats want their votes. The citizens get the shaft because our government refuses to get control of the issue. San Franciso, a "Sanctuary City" last year passed a law to provide illegals with identity cards so that they could sign up for entitlement programs easier, with an estimated cost of ninety million dollars. San Francisco, home of the Great Mother of All Wing-Nuts Nancy Pelosi, is broke. The estimated cost to California for the illegals is estimated to be between eight to twelve billion dollars per year. Again, until we stop it we will really never know the costs.

But don't worry about California. We are going to legalize pot and the resulting rise in the sale of fast food will bring us back. We want to smoke the same stuff they have in Washington called the "Green Shoots".

Jul 16 10:12 PM

[nmelendez:]

Just buy China stocks and wait for 20 years. :)

Jul 16 10:22 PM

[Tigertail:]

For a real adventure you should try being a conservative in CA, living and working there with no way out. Honestly, doesn't our crazy state government realize they're running everyone right outta here? Don't they realize they're taking their money with them when they leave?
There are some responsible citizens living here and we feel like we've been hijacked into a speeding car chase that can only end in a horrible crash if our politicians don't quit wasting our money on unnecessary things, day after day. They are like drug addicts high on other people's money, careening out of control around wild curves atop sheer cliffs. Their hypocrisy holds no bounds as they proudly email you about the latest pet project they spent your money on. After all, they're concerned about you--not!
I'm a native who's lived here my whole life and I can tell you that 50 years ago this was a great place to live. Now it's a great place to visit (for how much longer?) but you sure wouldn't want to live here.
Happiness will be seeing CA in my rear view mirror the day I finally get to leave. I've had it. You can't get through to this state government; it's like talking to a wall. Every special interest group and delta smelt matters to them more than their taxpayers. They are strangling the golden goose that finances the Golden State and once it dies, then what? Way to go, Sacramento.
Watch out, America...preview of coming attractions in a state near you!

Jul 17 12:05 AM

[Ryan Barnes:]

California has real structural tax problems that have grown ever since property taxes were effectively "capped" in 1978. But of the 76 comments here, over 90% are filled not with legitimate ideas or even constructive criticism....just vitriol. When did SA become the stomping ground of the pitchfork crowd?

All the CA haters need to keep one indisputable fact in mind. California has ranked amongst the top 10 net contributors to the federal government (in terms of taxes paid, people) for over two decades. Meanwhile there are about 30 states in the middle of the country that have been net gainers ONLY. Small taxes paid, big subsidies, year after year after year. Just think about that for a moment. If CA needs a loan, why shouldn't they get it? They are one of very few states that can be counted on to contribute to the pot once the economy turns. We've got 32 states that haven't contributed a net dime in over 20 years. It's fact, like it or not.

I know this post won't be popular, but nobody gains with so much anger flying around; it's just plain unproductive. Just imagine what kind of demands the federal government could make in exchange for a bailout! They could literally force the state to shake out the horrible legislative system that has led it to its knees. It's time to get original and stop being petty.

I don't know all the right answers - this is a very complex issue, but nobody wins when everyone's throwing stones at each other. If CA defaults on muni payments it doesn't just sink one state's ship; it will raise the cost of capital for every state in the land. We should all be afraid of that happening.

Best of luck to all in your investing efforts...not that there's any real investing discussion here, but best of luck nonetheless.

Jul 17 01:38 AM

[Michael Clark:]

Being born and raised in Wyoming, I'm sure there will be complaints about her citizens having to help carry California's burden. Wyomingites don't much like California anyway. But isn't that what it means to be a country? We can stop being a country, we can withdraw into our own state, into our own country, into our own town, into our own black, into our own house, into our own family, into ourselves. That's what sleep is, I think. That's also what depression is -- financial depression, and its companion, economic depression. Let's look out for #1. That leads to the dark ages.

I believe we are heading into the dark ages. I don't think it is anyone's fault really. It's a process of history: we expand in daylight; we contract in nightlight. We are contracting. We are becoming more and more provincial -- more isolated atoms in the landscape.

That is why protectionism is inevitable. It's the same process and philosophy: take care of your own.


On Jul 14 03:51 AM Steven Hansen wrote:

> i suspect you are correct that at some politically motivated point,
> the federal government will step up and bail out the states. they
> will want the states to work their damnest in the meantime to correct
> the shortfall by as much as possible.
>
> why should the citizens of wyoming be on the hook because california
> does not want to cut its services to save money? whatever happens,
> there will be a backlash from the states who do not need help.<br/>

Jul 17 02:11 AM

[Zmartmoney:]

The premise is ridiculous and unthinkable - California competing with the Federal Govt for loan money. The Feds are not going to turn over the money system to all the freeloaders hanging out on the west coast. After all, the eastern bankers aren't going to give it up without a fight. California is going to have a very rough ride for a while, until they figure out that the socialists who've been running their govt need to be run out of town - then they'll be ready to run them out of Washington, too. Won't that be fun... The sooner they suffer, the sooner we'll get this turned around.

Jul 17 04:00 AM

[Big Bubbette:]

Unfortunately the State Legislature has driven business and the people that pay taxes out of State in droves. Look at the statistics, for the last several years the number of people leaving California, not counting illegals, is higher than those entering. So I would not say California is the economic engine it once was. It is true that Prop. 13 that limited property tax is an issue, particularly as they shoe horned in commercial real estate into the deal. It is unfortunate that the People have to pass such Constitutional restrictions to limit the nimrods that roost in Sacramento ability to tax. If you want a snapshot of how ugly property taxes can be take a look at New Jersey.

But the fact remains, the control of the State Legislature by government unions and special interests that over the years have built a huge pyramid of entitlement programs is part of the systemic problem with the State. Until that is dealt with a balanced State budget is California Dreamin'.

Here is a discussion of the loss of population:

www.washingtonexaminer...


On Jul 17 01:38 AM Ryan Barnes wrote:

> California has real structural tax problems that have grown ever
> since property taxes were effectively "capped" in 1978. But of the
> 76 comments here, over 90% are filled not with legitimate ideas or
> even constructive criticism....just vitriol. When did SA become the
> stomping ground of the pitchfork crowd?
>
> All the CA haters need to keep one indisputable fact in mind. California
> has ranked amongst the top 10 net contributors to the federal government
> (in terms of taxes paid, people) for over two decades. Meanwhile
> there are about 30 states in the middle of the country that have
> been net gainers ONLY. Small taxes paid, big subsidies, year after
> year after year. Just think about that for a moment. If CA needs
> a loan, why shouldn't they get it? They are one of very few states
> that can be counted on to contribute to the pot once the economy
> turns. We've got 32 states that haven't contributed a net dime in
> over 20 years. It's fact, like it or not.
>
> I know this post won't be popular, but nobody gains with so much
> anger flying around; it's just plain unproductive. Just imagine what
> kind of demands the federal government could make in exchange for
> a bailout! They could literally force the state to shake out the
> horrible legislative system that has led it to its knees. It's time
> to get original and stop being petty.
>
> I don't know all the right answers - this is a very complex issue,
> but nobody wins when everyone's throwing stones at each other. If
> CA defaults on muni payments it doesn't just sink one state's ship;
> it will raise the cost of capital for every state in the land. We
> should all be afraid of that happening.
>
> Best of luck to all in your investing efforts...not that there's
> any real investing discussion here, but best of luck nonetheless.

Jul 17 05:38 AM

[Big Bubbette:]

Unfortunately the State Legislature has driven business and the people that pay taxes out of State in droves. Look at the statistics, for the last several years the number of people leaving California, not counting illegals, is higher than those entering. So I would not say California is the economic engine it once was. It is true that Prop. 13 that limited property tax is an issue, particularly as they shoe horned in commercial real estate into the deal. It is unfortunate that the People have to pass such Constitutional restrictions to limit the nimrods that roost in Sacramento ability to tax. If you want a snapshot of how ugly property taxes can be take a look at New Jersey.

But the fact remains, the control of the State Legislature by government unions and special interests that over the years have built a huge pyramid of entitlement programs is part of the systemic problem with the State. Until that is dealt with a balanced State budget is California Dreamin'.

Here is a discussion of the loss of population:

www.washingtonexaminer...


On Jul 17 01:38 AM Ryan Barnes wrote:

> California has real structural tax problems that have grown ever
> since property taxes were effectively "capped" in 1978. But of the
> 76 comments here, over 90% are filled not with legitimate ideas or
> even constructive criticism....just vitriol. When did SA become the
> stomping ground of the pitchfork crowd?
>
> All the CA haters need to keep one indisputable fact in mind. California
> has ranked amongst the top 10 net contributors to the federal government
> (in terms of taxes paid, people) for over two decades. Meanwhile
> there are about 30 states in the middle of the country that have
> been net gainers ONLY. Small taxes paid, big subsidies, year after
> year after year. Just think about that for a moment. If CA needs
> a loan, why shouldn't they get it? They are one of very few states
> that can be counted on to contribute to the pot once the economy
> turns. We've got 32 states that haven't contributed a net dime in
> over 20 years. It's fact, like it or not.
>
> I know this post won't be popular, but nobody gains with so much
> anger flying around; it's just plain unproductive. Just imagine what
> kind of demands the federal government could make in exchange for
> a bailout! They could literally force the state to shake out the
> horrible legislative system that has led it to its knees. It's time
> to get original and stop being petty.
>
> I don't know all the right answers - this is a very complex issue,
> but nobody wins when everyone's throwing stones at each other. If
> CA defaults on muni payments it doesn't just sink one state's ship;
> it will raise the cost of capital for every state in the land. We
> should all be afraid of that happening.
>
> Best of luck to all in your investing efforts...not that there's
> any real investing discussion here, but best of luck nonetheless.

Jul 17 05:38 AM

[bimbam:]

We could dispose of California and give it to Mexico. The Californian working class could then send pesos back to their families in the US to help them with money that's worth something in these times of crisis...

Jul 17 09:08 AM

[bricki:]

The problem with California is that they are disconnected from reality. The various propositions mandate spending and taxation, the unions have contracts that require certain amounts of spending and the Governator refuses to sign off on tax bills to pay for this. When you add the inputs and outputs the sum is a big negative number. Playing games when times are good lets you skate by but as soon as the economy turns down blammo the whole house of cards falls apart.

It isn't that California can't afford to do these things, they can. But what they are trying to do is have these things without paying for them. It is the same damn scenario that got us into this economic problem everywhere else. Disconnect from reality. Leverage 30x, how could that possibly be a problem? Write couple of hundred of billion in uncollateralized CDS and let the banks use them instead of real reserves. How could that be a problem? Make variable rate loans to people who barely can pay the base rate (at 50% of their income) into the middle of a housing bubble. And while you are at it don't bother verifying income. Cut taxes on a supply side theory that makes believe that by cutting tax rates you get more tax revenues. At the same time engage in two expensive off budget wars. And put your head in the sand when it comes to 50 Trillion in unfunded entitlements. Oh and no problem spending the social security trust fund contributions like they were general revenues, right? We'll just set up a lockbox over here and...oops.

It is a simple disconnect with reality and by bailing out California the fantasy is allowed to continue. Fact is that California has the means to fix their own problem. Without the harsh taste of the medicine this requires they will never face up to reality.

There will be a lot of unpopular things that Federal State and local governments will have to do over the next decade or so. But there is no way to avoid them. The big rock is rolling down the hill pretty fast now.

Unlike a lot of people here I have lot of faith in Americans. Show them reality and they will do the right thing. But sugar coat it, pull the wool over their eyes and they will go on in blissful ignorance.

This is the part that really scares me now. We still are not facing up to the complete picture of what needs to be done. This is where the current administration is failing.

On Jul 16 03:42 PM craigdc wrote:

> If California wasn't spending more than it can afford to spend, California
> wouldn't have a problem. The same simple logic applies to the federal
> government. The problem arises when both entities think they are
> entitled to borrow and spend as much as they want using the taxpayers
> to co-sign the loan.
>
> We really need to have the simple minds stop admonishing us to accept
> business as usual.

Jul 17 09:54 AM

[Russ Wetherill:]

Or, maybe its time for California to call in its marker. For years, this state has paid more in Federal taxes than it has received in Federal expenditures. A study at the Tax Foundation in 2004 found that California receives only 79 cents in federal expenditures for every dollar paid in federal taxes.

www.taxfoundation.org/...

Since California pays approximately $100B in federal taxes every year, a 21 percent increase in federal expenditures, would nearly balance the yearly state budget.

That said, I don't want a federal bailout for the state of California. Fiscally irresponsible deficit spending should not be permitted at the federal, state or local level. The legislature in Sacramento needs to learn to stop spending money they don't have, no matter how great the perceived need.

Jul 17 10:51 AM

[Lilguy:]

Bailing out the states would be about the worst policy action Washington could take at this time, all things considered.

Therefore, I consider it an entirely likely eventuality.

Then we're fried!

Jul 17 12:48 PM

[Depressed:]

Not one mention of the trillions spent on American Empire and militaristic adventures every year. If we didn't love spending money to kill people maybe we would have money for improving the country and weathering financial crisis' .

Jul 17 01:40 PM

[anger:]

On Jul 14 09:39 AM yellowhoard wrote:

> California needs to melt down so the rest of the country doesn't.
>
>
This is the stupidest response yet. When you say CA needs to meltdown, you do realize that you are talking about 11.95% of the population of this country? We are #1 in the ranking by population alone. We ARE the country.

Do you realize what social services they are cutting? I know many who are part of this furlough going on, and it is rough. They have children and families to support too.

By all means, be pissed of at our incompetent democrats AND republicans who can't work this out, but ignorance of the ripple effect on the MILLIONS of people in this state is just being downright cold-hearted. Not to mention, if you actually read the article, the start of the decline of "America" as we know it.

Jul 17 01:51 PM

[bricki:]

That is the most arrogant, self-centered response possible. CA is an extremely wealthy state. It is the largest state economy in the US and the 8th largest economy in the world. It clearly has the internal means to solve a 21 billion deficit given that it has a domestic product of 1.7 trillion.

> This is the stupidest response yet. When you say CA needs to
> meltdown, you do realize that you are talking about 11.95% of the
> population of this country? We are #1 in the ranking by population
> alone. We ARE the country.

Jul 17 02:33 PM

[MichaelAK:]

Anger,

I live in CA and tired of paying for everybody. That is anger on what these programs have done is create a dependent class. Reason CA has such a large population is everybody is in the state for the free ride on these feel good social services programs that have done nothing but promote a dependent class in this state. Both legal and illegal immigrants and citizens have taken advantage and now the state is broke. Time to cut the cord.


On Jul 17 01:51 PM anger wrote:

> On Jul 14 09:39 AM yellowhoard wrote:

Jul 17 03:29 PM

[applecore:]

Sounds like the country is already breaking apart.

Jul 17 03:38 PM

[RedRiver:]

Great response, thanks.

This is all new, by our hands of course. At the time of the Great Depression we did not have a "global economy". And it is precisely this that will strip away the benefits that our middle class assumes is a birth right and depress them to standards they are ill prepared to deal with. In order for us to compete through our middle class "engine" we need to produce goods and services cheaper and superior to those produced by India/China etc. If India is making chip sets @ $6/hour then we will need to make them at $5 and of equal or greater quality in order to regain that market share. The same goes for all industries, which we of course gave away in exchange for our new industry of fraudulent monetary "vehicles". The liability portion of our product has yet to be played out.

We also were not constrained by our current suicidal bundle of Rules, Regulations and Stupidity that seems to me to be Washington's greatest creations. Every over built item that occupies our country is just a symbol of our abject waste and self mutilation. One of the greatest housing stories yet untold is the City/Municipality responsibility for increasing the cost of an average home by $6,000-$8,000 with ginger bread add ons, porches and socialistic style land use regulations. A much greater % than any commodity explosion ever caused. There are many other stories I know.

And finally for me there is the simple and yet overwhelming fact that we wage earners do not earn enough (because we now produce so much less) to pay for all the non-productive people. Most of these people are and will be found on the government payrolls. People need to realize that no government employee creates any productive revenue. They are not a contribution to our society they are the virus that will eat us from the inside out. When Calvin Collidge left office in 1928 the government was 3% of GDP I believe. Now its going to 40%! There is not a viable economic system that can withstand that much insane pressure. It has been and will always be one of the greatest society killers of all time.

Regrettably it now seems its our societies time, its our turn. We the people, we got lazy and didn't watch or care what was going on as long as we were "happy". Print and Plummet. Good luck to all.


On Jul 14 05:57 AM User 353732 wrote:

> 1. The Govt can and is making things worse; it has no affirmative
> capacity in July 2009 to make things better . Intellectual fraud,
> moral bankruptcy, the criminal misallocation and waste of national
> resources, the deliberate expansion of the parasitic class and serial
> deceits by the political bosses are not the basis for increasing
> consumer and business confidence. Without an increase in confidence
> , no economy, anywhere, esp. not one as complex and large as the
> US can possibly revive.
> 2. When fantasy money, worthless credit and extravangantly false
> promises intersect they create a vapor economy that starts to dissipate
> and blow away as soon as a sufficently large number of investors,
> households and businesses perceive and painfully experience the chasm
> between " our policies are working; we know what we are doing; things
> are getting better" and their daily reality of falling income, compressing
> profits, increasing tax and regulatory oppression and evaporating
> net worth.
> Savings are rising , not because people and businesses are becoming
> more prosperous but because they are becoming more frightened by
> the day. The only way for savings to rise when income is declining
> is for consumption and long term risk investment in wealth creating
> activities to fall sharply. Consequently production falls and jobs
> disappear.
> 3.In July 2009, America finds itself with a shrinking and pessimistic
> new world middle class, a callous and self obsessed old world upper
> class and a third world Govt in Wash DC and in California, New York,
> New Jersey, Michigan, Illinois among other states.
> The old world and the third world have coalesced among our elites
> to assault the new world. Under these circumstances it is inevitable
> that we get a steadily worsening economy and a steadily compressing
> middle class. It is not the States that are collapsing but the Middle
> Class.
> 4. It is a deep error to think that the State Govts are the units
> and motors of economic activity and wealth creation in the US: they
> are engines of destruction. It is the Middle Class that is the source
> of innovation, job creation and wealth expansion. It is now the manifest
> policy of our Govt at the Federal and State(eg California, Michigan,
> New York) level to fanatically fuel the engines of destruction
> while sabotaging the engines of creation.

Jul 17 04:35 PM

[anger:]

Well, then by your logic, and by all means, please allow CA to "melt down".

Arrogant? I don't agree, just stating the facts as the warm-bodies as the facts.

As for the whole completely useless and irrational "illegal immigrants" argument, I don't see anyone in Orange County who is about to loose their home trying to go get work on the argricultural fields? Just what is the reality of "freeloader" versus "illegal immigrant" versus the "American Entitlement" issue? I have a feeling racism is the root of this issue, plain and simple.




On Jul 17 02:33 PM bricki wrote:

> That is the most arrogant, self-centered response possible. CA is
> an extremely wealthy state. It is the largest state economy in the
> US and the 8th largest economy in the world. It clearly has the internal
> means to solve a 21 billion deficit given that it has a domestic
> product of 1.7 trillion.

Jul 17 04:55 PM

[RiskAverseA...:]

Washington should hit up the City of London for its part in bankrupting AIG and in facilitating the greatest debt build-up in history via its offshore banking centers where most OTC derivatives originate. Truth is it was London's greater role in creating the intellectual framework supporting globalization that brought us to this point of insolvency and dissolution. They gave us the rope and we gladly hung ourselves with it.

(As such, Mr. Jamie Dimon might think twice about voicing his objection to moving the derivatives trade to regulated exchanges. He reveals his loyalties extend no further than his company and its deep-pocketed backers among Europe's aristocracy.)

The breakdown of wildcat finance facilitated by the City of London has everything to do with California's present troubles. So, too, does the fact that its governor is the son of a devout Nazi. Those who bash Washington, and by default the noble principle upon which it exists scarcely imagine what part their attitude plays in making our profound vulnerability possible, as well as what the dissolution of the United States they desire might mean.

Let me just say there are far too many qualified candidates for a Brown Shirts Corp commenting here. For the past 233 years enemies of the American Republic have been cultivating the likes of you. Do you not realize you are being played?

Jul 17 05:19 PM

[Boxed Merlot:]

Good participation on the subject here, but I'd like to hear some more of the nuts and bolts re: the strings attached to the 78% of the taxes we've fought to have returned. It's my understianding that much of these monies are returned with the understanding they are to "Start" programs of largess initiated at a Federal level, i.e. Congress' gift to further enslave us, a type of extortion , so to speak. Many other more fiscally responsible states have been more adept in refusing these "programs" and they are reaping the benefit now. As for prop 13, I can remember a sales tax of 4%, currently it's nearly 150% more than that now.

Jul 17 07:22 PM

[Skeptical Ben:]

As a current and native Californian, I have to agree. It is going to be painful, but governance in this state has to improve. We tried term limits, it actually made things worse. The newest pols are hard core no-new-tax republicans and hard core ever more convoluted benefits and spending democrats. Every good year a dozen ballot initiatives pass, every bad year, nothing, however badly needed, passes. For instance, 3 years ago we passed school construction to be financed with bonds. Now the school buildings are nearly finished, but there is no money to operate them. We need operations management specialists to overhaul everything, make taxation fairer (too complicated to cover here), pare down administration, and get the damn feds out of our schools and health care, they jam everything up with their requirements.
Bailing us out is throwing non-existent money after bad.


On Jul 14 11:37 AM receipt wrote:

> Subsidizing California's irresponsible economic decisions will produce
> more of them and lead to the collapse of the will to be responsible
> in the states that still are. The longer term result of not holding
> California accountable for its' stupidity will be to take down the
> rest of the nation with it.

Jul 17 10:15 PM

[User 357705:]

Not to secede.


On Jul 14 03:39 AM dondon wrote:

> What will be the states' "pound of flesh" Washington will demand?

Jul 17 10:36 PM

[User 357705:]

Because Wyoming sought to become and remains a part of the union.


On Jul 14 03:51 AM Steven Hansen wrote:

>
>
> why should the citizens of wyoming be on the hook because california
> does not want to cut its services to save money? whatever happens,
> there will be a backlash from the states who do not need help.<br/>

Jul 17 10:38 PM

[User 357705:]

Because MS and AL are part of the union.

Not hard to live better than a lower middle class MS or AL. Been there, saw that. Not pretty.


On Jul 14 08:29 AM doubleguns wrote:

> We need to return power to the states. Reduce the fed by about 2/3
> and taxes by 2/3. Allow the states to run the programs. Hire displace
> fed employees to run the programs at the states. Citizens can then
> decide what programs are important to them in thier state and vote
> accordingly. Let the Fed deal with our security, international trade/relations
> and Federal highways. Leave the rest to the states. I know this is
> not all inclusive but it is the idea.
>
> Why should a lower middle class citizen in Mississippi or Alabama
> send tax dollars to California to allow the state to hand out money
> to the poor that end up living better than the person in Mississippi
> or Alabama. Put a moratorium of one year before becoming eligible
> for state welfare to keep people from moving to the best welfare
> states.
>
> If California wants to spend millions on the sea otters fine but
> do it with California dollars not other states dollars. We have our
> own state issues we want to fund.
>
> Bailouts will never correct the overspending that has occurred in
> all of the govts, state, fed, county, municipality. A reset is needed
> and should be allowed to occur. Bailout the unemployed until the
> reset is finished. Let industry stand on thier own two feet or get
> swallowed up by the stronger. The end result is a stronger industry
> and new ideas creating new jobs.

Jul 17 10:51 PM

[User 357705:]

GM is a corporation and CA is a state. Big difference. In every possible way.


On Jul 14 11:33 AM KIT wrote:

> Any difference between bankrupt GM and California? Default would
> clear the state of debt. They would have trouble getting new bonds
> to float but would they need it. No one is going to reposess the
> bridges and hyways they ( bond holders ) will just eat the loss.
> Without debt service normal tax collection may be enough to make
> it work. Leason learned dont invest in States whos spending is out
> of control.
>
> Hmmmm..... or countries?

Jul 17 10:56 PM

[User 357705:]

Palin. And wow are we in trouble when that loser gets in.


On Jul 14 12:06 PM Tony Petroski wrote:

>
>
> After Carter came Reagan.
> After Obama:

Jul 17 10:59 PM

[User 357705:]

Its great to see Duhmerican'ts tearing the country apart with this kind of rhetoric. Poor guy, that fry cook job is getting to him.


On Jul 14 01:16 PM Socialism cannot compete! wrote:

> "Frankly, unless Washington prints money and bails out every state
> that needs capital, including California, federal power will decline
> amidst this severe economic recession, and the process of a soft
> American devolution will begin."
>
> Devolution? Author has it backwards. If the Feds bail out the Socialist
> Republik of California, what happens is merely that the day of reckoning
> is pushed off. The core cause of this systemic collapse, both in
> CA, and nationwide, is failed forays into socialism. We've been
> running deficits at the federal level most years for decades, due
> to socialist entitlements. Social (in)Security, Medicare/aid, FHA,
> Fannie, Freddie, HUD, etc., etc. It is unsustainable over the long
> term. The *only* reasons we've been able to push it off have been
> that the Feds have a printing press, and that the Boomer generation
> was in the producing age. Now that they are set to retire and the
> demographics are tilting the opposite way, the jig is up!
>
> By NOT subsidizing failed socialist states, we'll end up with state
> governments being forced to get back to doing ONLY the things that
> they ought to be doing to begin with. That is NOT devolution, but
> restoration. I very much fear that the Feds will "bail out" the
> states, propping up socialism ever more -- and that will mean a few
> things (all bad):
> 1) Further growth in size and power of federal government, while
> further increasing states' dependence on the feds.
> 2) Ever-higher spending and debt to pay for these "bailouts"; this
> inevitably will lead to either high inflation or huge taxation.
> Same thing, really -- lower disposable income for the earner. The
> death of the middle class.
>
> I can think of all kinds of motives for the Feds to step in (all
> related to grabbing more political power and more control over our
> individual lives, and restricting the ability of the middle class
> to become "independent" of "the machine")...and very few for them
> not to, even though "not" is in the best interests of most Americans.

Jul 17 11:02 PM

[User 357705:]

Except that no one wants to help the bully. And, frankly, the bully doesn't deserve to be helped by the people he terrorized.


On Jul 14 02:46 PM Vuke wrote:

> This is no longer just a Washington problem, it now belongs to the
> world. Washington can offer more and more paper, which will end
> badly in itself for everyone, or the world can step in to assist.
> Washington needs a lower dollar to assist in exports and job creation.
>
>
> For some time the U.S. has been the engine of the world economy and
> it's now time for a little effort from the passengers. Trade is
> a two way street, not a roadway to perdition.

Jul 17 11:04 PM

[User 357705:]

So, you think gov't is a good thing then! You believe that gov't is the solution and not the problem! You do believe that socialism is good when taxes are spent giving entrepreneurs funds, training, and education!


On Jul 15 08:16 PM mr freddo wrote:

> Americans, Californians, our problems are solvable over the long
> run if not in the short run.
>
> In life, one is rewarded for creating, whether a broadway play or
> a big mac. Our world economy is based on the interactions of those
> created values. Those that create extraordinary value are rewarded
> extraordinarily.
>
> In America and California, in an effort to maximize our comparative
> advantage, we funneled our very best and brightest minds of our generation
> into finance. The engineers were shunned, and engineering jobs were
> exported. Thus we forgot what we knew while teaching the rest of
> the world how to catch us quickly.
>
> We weren't too concerned. We kept churning out new financial products
> and believed that the financiers are the real masters of the universe.
>
>
> What we now realize is that a great deal of the growth in finance
> was based on false premises. 1. That you can take a basket of turds,
> squeeze hard, and create diamonds. 2. That you can alter the basis
> rules of personal finance and own a million dollar home with an income
> of $50 thousand a year. 3. That you can allow bankers to become salesmen
> and still not lose capital.
>
> To return our state and nation to greatness, we must immediately
> begin to build our future businesses that will create real prosperity
> for the 21st century. These companies will be technologically driven,
> will rely on domestic employment, and will start from nothing to
> become dominant world beaters in 20 years. They will serve as platforms
> of innovation spinning off new companies and creating new markets.
>
>
> These new companies will create a new class of wealthy capitalists,
> men and women trained to make money by taking risks, applying technology,
> and building strong stateside businesses that act as engines of employment
> for our citizens.
>
> So let's stop whining about who is to blame. Why we failed. Why
> we are doomed. WA WA WA!
>
> Let's start moving toward the solution, the answer, the bright light.
> Our clueless legislators, should start asking venture capitalists,
> entrepreneurs, scientists, and engineers what they need to get the
> pipeline of new companies rolling now so that we will have successful,
> exciting world beaters that employ our children and grandchildren.

Jul 17 11:18 PM

[User 357705:]

America hasn't survived. What you're seeing now is the last vestiges of inertia bleeding off.


On Jul 16 06:39 PM nobby73 wrote:

> It doesn't matter what you call it - bailout, stimulus, rescue package,
> it is simply debt. Government debt is a misnomer, it is the people's
> debt, taken out by the government. The obligations now resting with
> all Americans are quite simply far too high and can only be managed
> via default or devaluation. As a consequence, the US economy needs
> to become self-reliant. The addiction is debt and foreign investors
> are enabling the habit, but for Americans to become free again, they
> need to walk away from the obligations taken out in their name.
> Of course, this means that the purchasing power of the Dollar will
> be significantly hit, with oil rising. Therefore, there needs to
> be huge cultural changes, not the least of which being a touch of
> humility.
>
> America as a country, or even a philosophy, cannot survive on its
> current course. The changes will be dramatic and will shake up the
> whole world, but each citizen needs to understand his life has been
> mortgaged many times over and as it stands his freedom is illusory.
>
>
> Time for a declaration of independence from the federal government
> and Wall Street cabal?
>
>
> "We hold these truths to be self-evident, that all men are created
> equal, that they are endowed by their Creator with certain unalienable
> rights, that among these are life, liberty and the pursuit of happiness.
> That to secure these rights, governments are instituted among men,
> deriving their just powers from the consent of the governed. That
> whenever any form of government becomes destructive to these ends,
> it is the right of the people to alter or to abolish it, and to institute
> new government, laying its foundation on such principles and organizing
> its powers in such form, as to them shall seem most likely to effect
> their safety and happiness. "

Jul 17 11:37 PM

[User 357705:]

The end of the US is already underway. $30/gallon gas? You'll be lucky to get any at any price.


On Jul 16 06:41 PM shortbaldman wrote:

> Washington can't afford to let California collapse. They're damned
> if they do and damned if they don't.
>
> If Washington does allow California to collapse, it will be the beginning
> of the end for the U.S. You don't believe that the US will go the
> same way as the Soviet Union did, and break up into several pieces?
> What would stop it? When the money well goes dry, there will be huge
> disincentive for the 'rich states' to be disadvantaged just so the
> 'poor states' can be propped up.
>
> If Washington doesn't allow California to collapse, they will have
> to start (actually in truth, to continue) printing huge piles of
> dollars. This will lead to the collapse of the dollar, and a great
> big world of hurt as imported goods' prices go through the roof.
> That of course will be like the situation in Russia after Communism
> fell and the rouble dropped to about a tenth of its value within
> a very short time. How would $30 a gallon gas affect your lifestyle?

Jul 17 11:40 PM

[User 357705:]

Fried already and turned rancid.


On Jul 17 12:48 PM Lilguy wrote:

> Bailing out the states would be about the worst policy action Washington
> could take at this time, all things considered.
>
> Therefore, I consider it an entirely likely eventuality.
>
> Then we're fried!

Jul 17 11:49 PM

[curious cat:]

the great state of alabama laughs at your comment, sir. be assured that we have been baling our own cotton, since before eli whitney had his first gin. california's sour grapes have nothing to do with us. if california wishes to petition the congress for a handout, there is no need to denigrate our fair state to accomplish your task. you are, however, free to say what you wish regarding mississippi.

full disclosure: i am not authorized to speak or write for the great state of alabama. neither am i allowed to forge interstate policy with california. i am, however, allowed to travel through mississippi, carefully observing all speed limits.


On Jul 15 04:43 PM commoinsense1211 wrote:

> states like california and new york have been susidizing backwater
> s*** holes like alabama and mississippi for decades....

Jul 18 02:55 AM