California's New Budget Already $1B in the Hole

There is nothing new about politicians “underestimating” the severity of problems – especially the severity of problems with the economy. However, the current example of California's new budget being more than $1 billion 'in the hole' in just ten weeks suggests something different.

What makes the California example such an interesting anecdote for analysis is that with this budget being passed at the end of July, the media propaganda-machine has told us that the U.S. economy has been “in recovery” for that entire period since. The natural expectation is that (if anything) the “recovering” U.S. economy should have generated more revenues than expected, not less so. This is especially true since all the propagandists have recently revised upward their “growth expectations” for this same period of time.

This is not simply a matter of state revenues declining. Even using the bogus statistics of the government, state revenues were expected to continue falling – given that we've already been told to expect a “job-less recovery” in the economy. In fact, we're actually told to expect worse than a job-less recovery, because even the government's own mythical estimates of “economic growth” predict a higher unemployment rate. There are two serious problems with this scenario – as it is currently unfolding in California.

As I wrote previously (“The Myth of the Jobless Recovery”), under most circumstances a job-less recovery is impossible, and in the specific example of the U.S.'s debt-saturated, consumer-economy (i.e. Ponzi-scheme economy) it is utterly impossible. With no more access to additional debt for U.S. consumers (see “Record Plunge in Consumer Credit in July”), this consumer economy must rely upon employment income in order to feed the consumption cycle which will (hopefully) stave-off a debt-implosion for a few more years. Thus, worsening unemployment means a worsening economy – not a “growing” one.

However, there is even a more serious problem with the revenue discrepancy in California, which has led to the state budget being wildly off in its forecasts. Keep in mind that these are the first ten weeks of the fiscal year for this budget, where deviations begin from a starting point of zero. To already be off by more than $1 billion less than 1/5^th of the way through a year suggests a total budget-gap well in excess of $10 billion for the current fiscal year (if current trends continue).

I am not talking about a total debt of more than $10 billion for this fiscal year. I'm talking about the state taking on an additional $10+ billions in debt – on top of the record deficit it was forecasting.

Getting back to the immediate term, a Bloomberg article reports that the source of the added deficit is much lower than forecast income tax receipts – more than 5% lower already. Because these are 1^st quarter numbers, they reflect employment levels from the 4^th quarter of the previous fiscal year – when the total unemployment picture was (supposedly) already known.

While it is difficult to precisely translate lower tax dollars into higher unemployment, as a ballpark figure it suggests that California's unemployment rate was roughly 5% higher than official “statistics” (from the infamous, Bureau of Labor Statistics) reported. There is no surprise here, given that the government's own less-official (but broader and more accurate) measurements of unemployment put that number far higher than the headline, near-10% number which the propaganda-machine repeats a thousand times a week.

Of more significance, this also strongly suggests that the number of people who have lost their jobs is also far higher than what is acknowledged by the U.S. government. Indeed, the BLS recently “admitted” to being off in its “estimates” by over 600,000 jobs in the first quarter of this year, alone. As a compulsive liar (see “BLS Jobs Numbers Contradict BLS Jobs Numbers”), it is only natural to assume that this “admission” is, itself, another lie.

By my own, prior ballpark estimate, arrived at through analyzing the “weekly lay-offs” data directly from U.S. payrolls (and its traditional relationship with U.S. gains/losses in employment), I have calculated that the BLS is reporting less than 1/3^rd of actual job losses (see “U.S. economy to lose 20 million jobs this year”). Thus, while the added lost jobs acknowledged by the BLS takes total job losses in the first quarter above 2 million jobs in total, this is still likely less than half of the real losses for that period.

There are consequences to these lies, and (as usual) the Obama regime remains oblivious to those consequences (at least with respect to all public posturing).

One of those consequences is that much of the U.S. public has bought-into the convenient lies of the Obama regime – and immediately stopped attempting to boost their savings, since the “crisis” is now officially over. The savings-rate made an immediate drop once the government convinced the sheep that it was safe to spend, spend, spend again.

Even then, the savings numbers recently published by the U.S. are highly misleading. While the reported savings rate surged above 5% (after being negative for the whole economy for the last two years of the housing bubble), almost all of that added savings has been done by the wealthy.

I don't need a “crystal ball” to draw this conclusion. As I have reported on many occasions, the wealthiest 20% of U.S. society hold an obscene 85% of all wealth. Even in proportionate terms, this suggests that 85% of the increased savings is taking place among those who already have millions (or billions) tucked away. Furthermore, even those Americans fortunate enough to have employment are working less hours, for less total compensation.

Thus, contrary to the “spin” from the propaganda-machine, this historically modest rate of savings is not rebuilding the “balance sheets” of U.S. consumers, and preparing them for another cycle of over-consumption. Instead, the 85% of the population which holds a pitiful 15% of U.S. wealth (but 85% of the national debt) is merely trying to survive, with few members of that vast majority able to actually save anything. And it is the U.S. government, itself, which is doing everything possible to discourage any savings.

Indeed, “Cash for Clunkers” was a reckless attempt to not only drain the remaining savings of average Americans – but to goad them into taking on even more debt, despite the fact that U.S. auto-makers raised their prices to claw back virtually 100% of the subsidies it offered. In effect, the Obama regime used average Americans as additional financing for the bail-out of the Big Three.

This means that virtually all the recent “savings” which have been accumulating (which is still far below historical norms) is simply more “idle wealth” in the hands of people who already spend only a tiny percentage of that wealth each year. However, with this wealthy aristocracy holding 85% of all assets in the U.S., and with asset prices still far below what they were a few years ago, we can expect the ultra-wealthy to simply hoard all of this new savings, with virtually none of that money finding its way into the broader economy. Thus, savings data for the U.S. economy is simply more empty propaganda, intended only to influence attitudes.

This is classic “Ponzi-scheme” behavior. Those running the scam must maintain confidence, the key ingredient for all “confidence artists” (or con-artists, for short). This is why these scammers place such supreme importance on the numerous “consumer confidence” reports each month. As I wrote previously (“Time to rename U.S. Consumer Confidence Index”), what these reports now measure is how successful the government is with its propaganda.

These numbers are much more important than “approval ratings” and “polls” for the two political parties, since it matters little to the Wall Street oligarchs which of their two groups of servants is in power – given that Tweedle-Dee has served them just as faithfully as Tweedle-Dumb did before him. As I previously put forth in “The Bankers Manifesto of 1892”, what is important to the oligarchs is to keep the masses distracted (partisan politics is perfect for this), and somewhat appeased.

The problem with what the Obama regime perceives to be “success” in its mission (both the bond-bubble and equities-bubble remain intact as of this moment), is that there are no “recoveries” with Ponzi-schemes – there is only implosion, followed by rebuilding from the rubble.

Deceiving state governors with bogus statistics means that the debt problems of the vast majority of U.S. states continue to exceed “expectations” - based on those lies. This eliminates the possibility of state-level “stimulus” to try to resurrect this zombie-economy. Instead, virtually every state will be forced to accelerate job-cutting, to compensate for much lower-than-expected revenues – with the same process also taking place at the municipal level.

This leaves the Obama government utterly alone in trying to prop-up the U.S. economy – with nothing left to rely upon except Bernanke's magic printing-press, which supposedly can print infinite trillions of new currency, while the U.S. maintains the “strong dollar” promised this week by none other than Tim-the-tax-cheat Geithner.

Comments

[User 353732:]

Financial deficits and job losses increase in direct proportion to the surplus of deceit that now floods out from WashDc and Wall St. When coerced misallocation of resources is combined with the criminal issuing of fiat money and leveraged by a campaign of sustained and expanding propaganda then unreality and nonbeing become the defining characteristics of economic, financial and civic life.
When truth is despised by the Bosses and statistics become "facts as they should be" not facts as they are, then fiscal projections trump financial actuality and forecasted tax revenues trump actual receipts.
State and muni fiscal deficits are rising because they must in response to falling household and business income and unconstrained Govt spending. These deficits are now a measure of lies, greed, incompetence and malicious taking by the few at the expense of the many. They QUANTIFY the aggression of the elites against ordinary Americans.

The dollar is falling because when compressing net worth collides with rising liabilities and exponentially rising debt service with declining income the dollar must fall. The falling dollar is a MEASURE of the aggression of the elites against the world.

The Regime has succeeded, so far, in persuading the majority of ordinary Americans that recovery is what the Bosses say it is not what people experience in their daily lives; that falling income, evaporating jobs, dying small businesses, vanishing home equity and denial of credit to the deserving are the very stuff of future prosperity; that global retreat is a sign of true world leadership.

The rest of the world ,however, is less amenable to being ensnared and enslaved by the Regime's spells and webs. The more the Regime incants its dark spells upon the American economy and American people, the bigger the fiscal deficits and the weaker the dollar will be.

Truth and reality can be denied but they cannot be extinguished. They always prevail.

Oct 13 08:16 AM

[Clint007:]

What's left in California?
Budget debt is in fire, bi/millionaire houses are burning, dryness, a standby of an earthquake, a tsunami?

Well I found one thing left is the "dry" wines!

Oct 13 08:20 AM

[TeresaE:]

Nicely done as usual Jeff.

Michigan just reported "worst than expected" tax revenue for the 4th quarter (third quarter for those of us not at fiscal year end Sept 30), oops!

Funny, they couldn't see it coming, yet I could, after all the fact that my 20 year old favorite restaurant closed with no notice and I have an accounts receivable sheet full of disconnected fax numbers does not lead me to believe that there is a real recovery anywhere.

The economy now IS the Federal government and what we, the American people, need to start thinking about is how we will all feed ourselves once the check kiting scheme in WDC implodes.

Oct 13 08:21 AM

[yellowhoard:]

Get yourself a couple hundred pounds of beans and rice from Sams Club.

It won't cost you very much right now and it stores for a long time.

When the dollar collapses, and it will, the grocery stores will run out of food pretty quick.

Oct 13 08:31 AM

[tripleblack:]

California has been digging this hole for decades, with many a sane person pointing out that the hole had become dangerous and to watch out...

Now that Cali has fallen into the hole, is anyone really surprised?

Oct 13 08:53 AM

[Ryu Mei Co:]

wow..... well written article. By the way, Californians dug the hole, they should lie in it. What really bugs me is the fact that they never learn. I heard the saving rate are back to 3% again and are spending like there are no tomorrow. If Californians want to go back to the good old days, then fine, but the hole will only become their grave.

Oct 13 09:26 AM

[The Geoffster:]

Made my Sam's run on Sunday.


On Oct 13 08:31 AM yellowhoard wrote:

> Get yourself a couple hundred pounds of beans and rice from Sams
> Club.
>
> It won't cost you very much right now and it stores for a long time.
>
>
> When the dollar collapses, and it will, the grocery stores will run
> out of food pretty quick.

Oct 13 09:42 AM

[Jeff Nielson:]

Yes, Teresa. Michigan residents certainly have a clearer perspective of what is taking place than have Geithner and Bernanke - from high above, in their ivory towers.

Yellowhoard, agreed that FOOD is something else on which to be stocking up - with grains being at the top of the list.


On Oct 13 08:21 AM TeresaE wrote:

> Nicely done as usual Jeff.
>
> Michigan just reported "worst than expected" tax revenue for the
> 4th quarter (third quarter for those of us not at fiscal year end
> Sept 30), oops!
>
> Funny, they couldn't see it coming, yet I could, after all the fact
> that my 20 year old favorite restaurant closed with no notice and
> I have an accounts receivable sheet full of disconnected fax numbers
> does not lead me to believe that there is a real recovery anywhere.
>
>
> The economy now IS the Federal government and what we, the American
> people, need to start thinking about is how we will all feed ourselves
> once the check kiting scheme in WDC implodes.

Oct 13 10:18 AM

[Glen L.:]

I agree with the thrust of this arcticle, but not the anti-rich class warfare rhetoric. They will pay a magitude or two more than their per-capita share of the national debt, and they weren't responsible for it in the first place, in most cases.

The phenomenon of wealth in this country is perfectly consistent with Pareto's law, wherein 20% of the people PRODUCE 80% of the wealth, by doing 80% of the savings, entrepreneurship, and capital investment. The Obamas of this world, who want the rich to pay for everything and subsidize the non-producers, are the villains in this story, and the author needs to re-examine his characterization of wealth belonging to the producers as "obscene".

Oct 13 11:58 AM

[Jade Queen:]

I agree with Glen that we can make distinctions among the rich.

The wired-in rich are the ones who may come to understand the error of their ways in some locales.

An example may be Portland, where M. Paulson, son of an infamous Paulson, wants to own a soccer team, using "his" money.

An tricky issue is that he also wants to own a baseball team.

The baseball team needed to be unhoused to revamp the former baseball stadium to the specifications of world-class soccer.

He and some city-council members tried to take a veterans memorial for baseball, but an interesting alliance of veterans and architects shut them down.

They tried to take a Little League venue in a working class neighborhood, thinking they would be received as liberators.

Boy, did that not work, and I wish there were video--maybe there is.

There are locales where top-down wants are met by ferocious bottom-up expressions of Little People needs.

Paulson and the 20% will get soccer.

I am not sure where baseball will go, possibly across the river to Washington, where an interesting percentage of former Oregon 20%'ers have gone to escape punitive income taxes.

The former 20%'er Oregonians escape Washington sales taxes by shopping in Portland or growing their own whatever.

Crunchers on the right and left leave out the furious ability of U.S. people to go around elite inadvertent (perhaps) manipulations, in locales that can put together voluntary issue-communities in a heartbeat.

Some locations gain population when the New York Times talks them up (e.g., Portland, where there is good free beer on street-fair days).

The 20% can go wherever they want, on a whim, and they finagle the tax angle with internet- and boots-on-the-ground research.

This is why property values continue to go up in certain places.

Looking only at the macro for a state does not explain an entire picture.

A watched pot does not boil in the short-term, but as heat builds up under the surface, the surface will change.

It is sad to me that the major media does not make trend information widely available, especially in health research, for example.

Nonetheless, places highly infiltrated with small voluntary groups tend to get statistics that would lead you to believe they look far different from how they actually look if you go to eyeball them.

Oct 13 12:34 PM

[swaps:]

This essay plays into my personal belief that institutions are too big to manage.

For a start, perhaps Californiai should break into three states, with each area trying to fix itself.

A major problem for California is that its elites have numbed Californians to accept hordes of illegal cheap laborers, with a resulting huge drain on state resources and a destructive rise in crime rates that makes decent people want to flee or just stay indoors.

There are so many Hispanic and socilaist subversives in Californiai government at all levels there is no easy way to fix the problem.

Actually, when Jeff writes about the upper 20 percent hoarding their money this is similar to the Mexican economic model. I have read Mexico has the highest number of per capital millionaires in the world, but also a huge peasant class. The elites refused to tax themselves to improve the education and opportunities of theiri Indian blooded citizens. Opting instead to force them to migrate to the U. S. where corrupt leaders welcome them as an instrument to destabilize and destroy the U. S. middle class.

An impermeable border - to also protect us from alleged Islam terrorists - would have penned in the admittedly sympathetic Indian Mexicans to put revolutionary pressure on the Mexican elites to act more responsibly.

Former U. S. Senator Ken Salazar of Colorado, a dual citizen if there ever was one, was a blue dog Democrat. He, like his Mexican fellow elites, wants Mexicans to flood into the U. S., but at the same time he did not want to raise taxes to pay for the inevitable subsidies that unfunded labor requires for health, housing, education and incarceration. This is the same strategy that ruined California.

We need to keep taxes low in the U. S., but we also need to stop the corporate, immigrant and defense contractor welfare programs that bankrupted us. Fraudulent banks should have collapsed into the void.

Following the same deficit spending course as the U. S., California has failed because it did not have a state federal bank that could just print fiat money to keep the balls juggling in the air for a little while longer.

Oct 13 12:42 PM

[Jeff Nielson:]

Hi Glen.

It's exactly WITH the "Pareto principle" in mind that I am pointing out this horrific imbalance.

Yes, I'm aware of the 80/20 ratio. However, there are two VERY important points to keep in mind.

First, the ratio in the U.S. is that the bottom 80% in the U.S. only hold 15% of the wealth. Put another way, the bottom 80% in OTHER Western societies have roughly a 33% higher standard of living - which puts an entirely different perspective on this issue.

I'm sure that most middle-class Americans would consider a 33% different standard of living a HUGE deviation from the Pareto principle.

The second point to make is the fundamental flaw in either the FORMATION or the INTERPRETATION of this principle. The top 20% don't "produce" 80% of a society's wealth, they ACCUMULATE 80% of a society's wealth - due to a hopelessly flawed system of taxation which PERMANENTLY transfers wealth from the poor and middle-class to the ultra-wealthy.

I would ask both you and Jade Queen to note the distinctions among the wealthy which I have EXPLICITLY made in numerous previous commentaries (and comments).

It is not the MODERATELY wealthy who are the source of this problem. Indeed, most upper-middle class members (whether in the U.S. or Canada) are likely being somewhat OVER-taxed.

It is the FILTHY-rich, the 1% of Americans who hold 35% of all wealth and 55% of all stock who are the problem. These are the people who get a "free ride" from the tax system - since "income" from employment is only a TINY component of their annual gains in wealth.

A tax system based on income (as a matter of basic arithmetic) will ALWAYS under-tax the ultra-wealthy - by an enormous amount. It is through tax policy ALONE that such obscene fortunes are being amassed - and has virtually NOTHING to do with these people actually CREATING wealth.


On Oct 13 11:58 AM Glen L. wrote:

> I agree with the thrust of this arcticle, but not the anti-rich class
> warfare rhetoric. They will pay a magitude or two more than their
> per-capita share of the national debt, and they weren't responsible
> for it in the first place, in most cases.
>
> The phenomenon of wealth in this country is perfectly consistent
> with Pareto's law, wherein 20% of the people PRODUCE 80% of the wealth,
> by doing 80% of the savings, entrepreneurship, and capital investment.
> The Obamas of this world, who want the rich to pay for everything
> and subsidize the non-producers, are the villains in this story,
> and the author needs to re-examine his characterization of wealth
> belonging to the producers as "obscene".

Oct 13 01:24 PM

[Chancer:]

"As I have reported on many occasions, the wealthiest 20% of U.S. society hold an obscene 85% of all wealth."

The socialist liberals would say that the simple answer to our problems is for the state to confiscate that wealth. That is what Obama wants to do. That is the policy that CA has been following with their income tax, resulting in the wealthy and business leaving CA.

The CA budget shortfall should be of no surprise to anyone. CA will probably have greater difficulty climbing out of the recession hole than most of the country. CA was in serious trouble before the recession and has an anti-business philosophy from the Sacramento government.

A recent report said CA government regulations cost business almost 1/2 trillion ($493 billion) and 3.8 million in lost jobs over 12 months.

Oct 13 02:00 PM

[Kristjan Ve...:]

It's not only the California budget that's already in the "hole". The Treasury was in the hole on the second day of this fiscal year. Here: www.lemetropolecafe.co...
Raw data here: fms.treas.gov/webservi...

Oct 14 06:54 AM

[chris coonan:]

We could use an update on this article.

Nov 29 03:31 AM

[chris coonan:]

I think California will be a big deal next year, writing more IOU's than ever....

Nov 29 03:32 AM