Use access key #2 to skip to page content.

alstry (34.88)

California Lawmakers Idiots????

Recs

14

August 02, 2008 – Comments (10)

Current estimates for the California deficit is $17-20 Billion dollars.  Revenues coming into the state are slowing every month making upward revisions likely.

The Governator's reducing 200K workers to minimum wage and firing over 10K saves only $1 Billion per month.

The democrates want to raise taxes by $8 Billion leaving about $10 Billion in deficit unfunded.

The republicans want to cut services by about $8 Billion leaving about $10 Billion in deficit unfunded.

Can anyone do math in California?  If CA reduced wages, raised taxes, AND cut services as described above, after factoring the likely continued contraction in revenues....Calfornia would still be running a deficit!!!!!!!!!!!!!!

California's total budget is about $100 Billion.

10 Comments – Post Your Own

#1) On August 02, 2008 at 5:53 PM, alstry (34.88) wrote:

To put the current deficit estimate in perspective....not too long ago the estimate was about $4 Billion and as the months passed it has been raised to the current amount of about $17-20 Billion depending on who you believe.

Report this comment
#2) On August 02, 2008 at 7:03 PM, oldfashionedway (35.34) wrote:

California:  the left- coast, trend-setting vanguard for the nation.

Report this comment
#3) On August 02, 2008 at 7:29 PM, alstry (34.88) wrote:

In the past it was only California, or only New York City, or only Miami....now it is

CA, NY, FL, AZ, NV, MI, IN, IL, OH, GA, and many more all at the same time.

Plus residential mortgages, HELOCs, consumer revolver debt, commerical real estate debt, commerical debt, private equity debt, LBO debt and much more.....

My friends we are talking about over $30 Trillion dollars of debt not including the Federal deficit.  Much of that debt was incurred or refinanced in the past five years.  As revenues slow, that debt consumes a greater and greater percentage of revenues.  Right now, to service the above debt we are talking about $2 Trillion dollars per year.  The total GDP is only $12 Trillion dollars and shrinking.

There is only $6 Trillion of deposits in all the banks in America.  Think about that for a second.

Report this comment
#4) On August 02, 2008 at 7:48 PM, TMFEldrehad (99.99) wrote:

The worst part, in my mind, is that California has seen revenues continually outpace inflation and population growth combined - year, after year, after year.

Spending problem or revenue problem?  The simple fact outlined above is, in my mind, irrefutable evidence as to which one of the two is, by far, the bigger issue.

Report this comment
#5) On August 02, 2008 at 9:54 PM, zygnoda (27.05) wrote:

And the structure of the state’s budget, which is heavily leveraged and peppered with numerous mandatory spending requirements approved as ballot measures by voters, makes it all the harder to balance.

“Propositions have money mandates,” said Jonathan Zasloff, a law professor at the University of California, Los Angeles and an expert on the state’s constitution. “So much of the state is in hock, anyway.”

http://www.nytimes.com/2008/08/03/us/03budget.html?ref=us

Report this comment
#6) On August 02, 2008 at 10:23 PM, alstry (34.88) wrote:

Zyg,

The article is dead on point.  But it is not only the state that is in hock to its eyeballs......so are the cities and counties.

And the above doesn't just apply to CA....it applies to just about every state in the union.  And not just every state...how about a boat load of businesses as well.

How the hell does anyone expect Ford, GM, and Chrysler to pay back about $1 Trillion in debt with sales collapsing and now leasing about to be extinguished?  That is about 10% of the US national debt.

As a country we have been sold on 30 years of financial planning that was based on a ponzi scheme of ever increasing debt.  Now the banks have run out of money and it is getting more difficult by the day to borrow money.

Many of the mortgage companies are out of business.  Try to borrow on a commercial project that is non owner occupied.  Many of the student loan lenders have shut down.  Auction rate securities are dead killing many municipal projects. 

Every American(that is aware what is going on) is hoping and praying the banks start loaning money....but the banks don't have anything to lend.  The fed is pumping as much money as they can just to keep up with the defaulting debt and banks are still going under.

In the end, a few banks will remain solvent, but most everything around them will be dead.  Including our pensions, our retirement accounts, and most of the banking system we see around us today.

There simply is not enough revenues to service the obligations we have created.  This was the day Americans hoped would never arrive....while they were alive at least.

Well, it is now here, the banking system is out of money and has practically stopped lending.  The ponzi game is over and assets are crashing everywhere.

If you havn't sold by now.....it is pretty much too late.  In the end, the Fed can only print what it can convince others it can pay back.  With revenues shrinking, any more printing will devalue the dollar to nothing and that would not be in the Fed's or country's interest.

Any further devaluation of the dollar would cause interest rates to skyrocket.  If we can't service debt at these interest rate levels....it would certainly be more difficult at higher rates.  The Fed knows this and has forced banks to basically stop lending.....just go and talk to your local banker.  Once America understands this is the way the Fed is moving, the sh*t will hit the fan.

Better to endure a lot of pain now than completely kill ourselves with higher inflation in an insolvent environment.  Most people cannot distinguish between insolvency and illiquidity.  Greenspan identified the subtle difference in a recent interview and called the current times a once in a hundred year issue....no kidding!!!!!

This week, we should get a pretty good perpective on where the Fed is going....many may be shocked.

 

Report this comment
#7) On August 02, 2008 at 10:35 PM, alstry (34.88) wrote:

Zyg,

As a follow up to my previous response........

CA is stuck between a rock and a hard place.

The California situation is the perfect example of non solution solution.  No matter what CA does, it is not enough.  If it cuts its budget by the requisite 20% to balance the budget, the economy and tax revenues will contract further requiring further cuts(governent is the biggest employer and driver of the economy in the state).  If it doesn't cut enough, the deficit will spiral out of control and it will be unable to borrow money to keep operations funded.

In addition, with the current situation deteriorating by the month, 20% is probably a starting point...therefore, at this point CA is basically insolvent. 

There is no way to make up this kind of deficit with higher taxes....not when you are one of the highest taxed states in the union and your constituents are staring a recession in the face.

The cities and counties face similar issues and are in similar conditions.

Clearly, fireworks are about to explode around the nation simply from state and local government defaults......roll that over into banking defaults and we could have a very interesting pre election season indeed.

 

Report this comment
#8) On August 03, 2008 at 1:48 AM, hall9999 (99.22) wrote:

  The math looks fine to me alstry.

"The Governator's reducing 200K workers to minimum wage and firing over 10K saves only $1 Billion per month.

The democrates want to raise taxes by $8 Billion leaving about $10 Billion in deficit unfunded.

The republicans want to cut services by about $8 Billion leaving about $10 Billion in deficit unfunded."

$1B/month salary cuts = $12B.  Add to that $8B in taxes or cut services = $20B. 

 

Report this comment
#9) On August 03, 2008 at 3:41 PM, DemonDoug (77.16) wrote:

al, i remember reading on another forum about a game called simcity 4, where the only way you could lose is by letting debt get out of hand.  Like once the debt got above 50% of your city's domestic product, you entered a debt spiral that you could not get out of.

seems like that's what you are saying is happening to CA (along with many other businesses).

I think you are still underestimating the power of the banks to inflate.  It would only take a simple act of congress to allow the Fed to basically say "Every dollar today is now worth 50 cents" and devalue the dollar by 50% on the spot.  In essence this is what they have been doing, but over a 3 year period.  I expect a further 50% dollar devaluation over the next 2-3 years.  This keeps us solvent, and keeps the game going for the banks.  Neat, huh?  The only way this changes is if Congress grows some hair on their balls and forces the charade to end, but oh, what's this?  300b ag, 168b stimulus, 300b mortgage bailout - yeah congress is really gonna force the fed to stop printing money.  Not damn likely.

Thing is al, even though you are more bearish on the markets, this is where I feel I am more pessimistic overall.  You expect a systemic collapse.  I don't.  I expect the banks to maintain and even possibly gain power from all this toxic debt.  Sure, many will go belly-up, but not as many as you expect, and not as many that should be dead.  Just look at WCI and SPF - these guys have been insolvent for over a year now.  Yet the game is still going.   I expect efforts will continue to devalue the dollar and the system to go through superficial changes at best, wheras it seems as though you are looking for wholesale changes.

While I WISH that I could foresee wholesale changes, because it would be better for the USA and the world as a whole, I don't see that happening.  This is why so many people are advising to buy gold and silver - because they see the banks continuing to devalue the dollar to save their own a$$e$ and to maintain the system that has made bankers insanely wealthy.

Report this comment
#10) On August 03, 2008 at 4:54 PM, dexion10 (27.48) wrote:

I agree with Demon Doug... it's unlikely that we've seen the end of the Anglo financial system - what's more likely is the ponzi scheme continues to evolve - even though the ultimate failure (someday) is inevitable.

Report this comment

Featured Broker Partners


Advertisement