"It's Not A Tumor!"
That line may have worked in the 1990 box office thriller Kindergarten Cop, but with regard to the nations largest economy, Governor Schwarzenegger -- it sure as heck ain't benign!
With California's budget deficit swelling to over $26.3 billion, there doesn't seem to be an end in sight as their fiscal conundrum grows at about $25 million per day. Last week Fitch, one of the three big credit-rating agencies, downgraded state bonds from A to BBB - just a step away from junk bond status.
The result: Panic amongst state residents -- educational proposals are sure to be cut, along with health care programs for the poor and other vital social safety nets. And let's not even mention the fact that CA hosts 5 of the 8 counties with the nation’s highest home foreclosure rate (oh wait; we did just mention that. sorry).
The Solution: Panic amongst government - the state officially starting offering IOU's, or "registered warrants", in order to pay bills, provide residents with tax refunds, and keep the state from totally disintegrating. Refusing to consider tax hikes or various stopgap measures, the Governor seems more concerned about "his legacy" than he does the budget.
The Consequences: Panic, well, in general - The last time CA had to offer IOU's was in 1992, and at that time, Bank of America (NYSE:BAC) was able to keep things in order. However -- last week -- several banks said they'd officially stop accepting IOU's by July 10th. Well, July 10th has come and gone, and so has much of the goodwill from the private sector. As they promised, Bank of America, Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), and the Union Bank of California all rejected IOU's as of July 11th. The only banks still willing to accept IOU's: Citigroup (until July 17th), and Bank of the West (indefinitely).
What's a head of state to do? The former Mr. Universe and debatably lame duck Governor may now be asking himself, as he once did in the smash hit Total Recall, "If I am not me, who da hell am I?"
We have no idea Arnie. No idea.
-Jordan DiPietro (lifelong Arnold fan and considers Twins to be one the best movies of the late 1980's)