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There are a lot of unhappy state workers grumbling near Contrary Investing /Chrometa Headquarters right now! Arnold "Governator" Schwarzenegger just hit over 200,000 California state employees with a big pay cut - all the way down to minimum wage - until the state budget is passed. The Sacramento Bee reports:

Roughly 200,000 state workers will receive minimum wage paychecks next month under terms of an order issued Thursday by the Schwarzenegger administration.

According to a letter delivered to Controller John Chiang in late afternoon, July pay for most hourly state employees will be withheld to the minimum allowed by federal law – $7.25 an hour – and then restored once there's a budget.

It's more of a grandstanding political move than anything - workers will receive back pay plus interest once the budget is passed. But, it's a HUGE hit to near term cash flow for the workers affected. If you're a state worker living paycheck to paycheck, this certainly would suck.

News like this should increase in frequency and severity as the current Depression deepens. This is just the tip of the iceberg. State tax revenues have fallen across the board - and they can't get up.

State governments can't print money, so they have to either cut spending, or outright default on debt outstanding. My bet is that we see very deep spending cuts, followed by eventual defaults, before this is all said and done.

And if that's the case, you definitely do not want to be invested in Munis - read on for more info about why you should avoid Municipal Bonds.

Disclosure: No positions

Source: The Governator Strikes: Another Warning About Municipal Bonds