How did it come to this?
Ten days remain before California will begin defaulting on its obligations.
The state is spending so much money that Governor Schwarzenegger could fire every single California civil servant and still not come close to balancing the budget! Even if he also fired the other 149,000 legislative aides and people who work for the state’s courts or university systems (people not directly under the state’s control), he still couldn’t eliminate the deficit.
Lawmakers are spending so much money that California could become a state without employees and still not balance its books.
Alternatively, Schwarzenegger could close every single state prison, fire the guards, release all the prisoners—plus cut off all funding for health care across the entire state—and still be billions in the hole.
Governor Schwarzenegger has described this deficit as a rock upon California’s chest that is suffocating the state.
Already Schwarzenegger has ordered most state offices to close two Fridays a month beginning in February. The unpaid days off will effectively reduce employee salaries by around 10 percent.
But the situation is now so critical that state Director of Finance Michael Genest says that in just over a week, California will be forced to defer making payments on certain state commitments. Instead, he says, “the state will have to defer or pay with ious for most of its obligations.”
That is right; California will be reduced to sending out bits of paper indicating that at some point in the future, if finances ever allow, the state will make good on its bills.
State Controller John Chiang says that tax refunds will be delayed, as will payments to state vendors and local social aid programs. Some rent and food assistance programs will be held back. Californians should also eventually expect permanently higher taxes, reduced services, and mounting job losses. Not a pretty picture, but one that looks likely.
Each day that passes without a new budget will necessitate even more cuts and tax increases, says Genest.
America be warned: As California goes, so goes the nation.
You can't expect the 8th largest economy in the world to go under and it not effect everything else.
For starters, the muni bond market would be rocket from one coast to the other. And then things would get ugly.