Friday, April 01, 2011

The Impending California "Bankruptcy"

State employees want every dollar promised to them and nothing less. California has one minor problem, a lack of funds. In the past when times were good there was always a way for the States to generate new funds with bonds and fee hikes. Adding to this deep pockets concept, the Federal Government doesn’t need a balanced budget, they can print dollars. Everything can be funded-----Right??? To the average voter, the lack of funds is a political, rather than fiscal issue. In reality, it is the other way around. It’s a fiscal issue, at the State level that is getting worse.

The Damn Republicans are tightwads and don’t want to spend the money. The Democrats are sobbing die heart liberals that are going to save mankind. Take either side, it makes no difference. Notice though, lack of legislative funding will terminate State government worker paychecks in a rather sudden way. They might keep police and fire departments running, but for how long. Who pays for the gas in the squad cars and fire engines? The Police in Illinois can’t use State credit cards for gas purchases. Stations refuse to honor them; the state is considered a deadbeat.

Governor Brown of California wanted to have a special election for raising new taxes and the Republicans wouldn’t go for it. The previous governor (Arnold) tried it and it went nowhere. Can you envision a line of people, enthusiastically waiting to vote to raise their taxes in a special election? You have to be smokin' something for that to seem half way real.

The 25 billion dollar shortfall for California’s budget could be more like 65 billion—it depends on who is doing the books. All of the accounting tricks are starting to unravel. The people running the government are people just like you and me;-----understating the bottom line isn’t really lying. I suspect that current tax collections for next year’s budget have already been spent in this fiscal year (a minor bookkeeping anomaly).

What happens from here? California is broke; it can’t pay all of its bills. Of course the concept means nothing to the average citizen. It has never happened before in our life time. To most people, it is an impossible event, it can’t happen. “Where is my paycheck!” will be the cry from State workers. And from there, the real world will be seen again as it is, for the first time in 80 years. The option to pass a bond issue, and kick the can down the road another 4 years, is over. The shortfall of 25 billion has already been spent and we only have 3 months before the new fiscal year begins and California has to have a balanced budget.

If there isn’t enough money to go around, then who gets paid by the State? The bigger question, who doesn’t? The answers will be forthcoming-- from who-- well, that’s hard to determine, but you can bet your bottom dollar that it involves a lawyer.


Sackerson said...

Hi, Jim. I don't know your sustem and would like to know more, but I understand the State itself cannot go bankrupt, although its agencies can:

Taking the doomsday scenario and rewriting to make it more like what happens in real life, how do you envision the changes to come, at ground level?

Jim in San Marcos said...

Hi Sack

You're right about the States not being able to dismiss their debts through bankruptcy. Citizens can't sue the state for non payment so the need really isn't there for that sort of protection from creditors.

I was having a rough time of putting a title on that missive and should have put quotes around "bankruptcy." The funny thing is that I used the same title with quotes August of last year The Impending California "Bankruptcy"

That article goes into more depth about the future for California.

In the doomsday scenario a lot of state workers will not get paychecks and many vendors will have a rough time collecting debts owed.

If a State organization has no budget for payroll, the employees will be told not to show up for work. You can't really call it a "layoff," but it has the same effect.

AIM said...

Can you say... federal bailout?

Anonymous said...

Human behaviour: denial; refusal to accept the reality of the group and circumstances and to live only for self-survival instead and to demand one's paycheck and benefits and free government services and all entitlements; never predicting the future and consequences thus never preparing for anything; not realizing that borrowing, spending, deficits and printing must stop now or we're doomed-- and doing something about it right now; allowing public unions to continue in the mode they are in; allowing our Congress to be filled with self-interested corrupt and icompetent people; and needing a crisis and everything going to hell in a hand basket before doing anything.

Nothing will change until the whole systems seizes up and collapses. Then lots of pain and chaos and an eventual reformation. History

Jim in San Marcos said...

Hi Anon 11:02

Your first sentence sums up this mess quite well.

A sentence that long, almost needs a table of contents;>)

Jim in San Marcos said...


A Federal Bailout is kind of like the Tar Baby that Brer Rabbit tangled with. You bail out one State and then the other 49 get in line for a free slice of pie.

It might come down to that for State pension plans that go broke. The upper limit on pension payouts that the Fed is doing, is about 43K a year (I could be wrong on the actual amount). So if you have a 120K per year CaliPERS pension, you would get one hell of a haircut if they went bottoms up. I could never figure out why a guy making more than me is entitled to a better pension. If he makes more, let him save more towards retirement.

Anonymous said...

City of Alameda, CA. may go bankrupt, City treasurer says.

Anonymous said...

What the entitlement mentality misses is this:


Jim in San Marcos said...

Hi Anon 8:24

Bankruptcy works out very well for the cities and counties. Their liabilities are passed up to the state level.

Cities could use the bankruptcy route to dump their pension plans on the State. From there, retirement benefits for government workers might not be, quite what was anticipated.

It's a rather cruel joke, if you put in 30 years and don't get what you were promised. The phrase "going postal" seems to hang in my mind for some reason.

AIM said...

Everybody is gonna get a haircut sooner or later... a crewcut. But the rich, the power elite... their hair is growing down to their ankles.

Jim in San Marcos said...


I agree that the haircut is there for everyone. But when you scrimp and save all your life and end up in the same place with people who never saved a dime, it kind of sucks. A lot of people got rich the old fashion way, they saved their money.

I've got a small Spam can that I have filled with about $30 worth of silver coins,saved over 40 years. The damn coins are worth a thousand bucks now. We have already had one haircut and there isn't too much left to cut--from where I sit.

Just as long as it isn't a "French" haircut (a la Guillotine) we should be good to go. And that translates as " get a job and work until you die." We are going to have a lot of fun doing this, I can hardly wait.

Anonymous said...

Ben Bernanke has all the emotion of a fried circuit board.

His dome is buffed, his beard is fastidiously trimmed, but I’ve never seen the guy smile.

Even if he weren’t Wall Street’s android, it’s not smiling time for the B-man, because after months of fighting tooth and nail all the way to the Supreme Court to stop it, Bennie and the Feds lost their effort to keep the records of what they did during the financial crisis hidden from the American public.

As a result, last Thursday, the Fed vomited 30,000 pages of previously confidential information into the public consciousness.

And what do we find buried in the 900 computer files of information the Federal Reserve Bank was forced to cough up? We find that they dished out $3.2 trillion to companies and banks around the planet like some crack-smoking Santa Claus.

One of the beneficiaries of Ben’s largess was a bank with branches in New York named the Arab Banking Corp. The Arab Banking Corp is 59% owned by that Middle Eastern Messiah-in-his-own-mind, Colonel Murammar Gaddafi’s Central Bank of Libya.
In fact, Benny and the Feds gave at least 46 “emergency” loans to the Arab Banking Corp. during the Fall of 2008, some with an interest rate as low as ¼ of 1 percent.

So while you were busting your hump to pay your 24% interest rate credit card, Murammar (who looks a little like he’s had a Prozac IV here) had an extension of his central bank snatch a cool $26 billion from Brother Ben at interest rates that could slide under a snake’s belly.

We love you, Ben.

Well, you say, that was then, and this is now, and the Administration has discovered that Gaddafi is actually a dictator scumbag and we’re currently bombing him back to the Stone Age.

One little question though: if Gaddafi is now the bad guy, somebody new to bomb, somebody new to strangle with economic sanctions, why is it that baby-faced Timothy Geithner, has let the Arab Banking Corp. skirt the economic sanctions against Libya initiated back on March 4th?

What’s the deal, Timmy?

This, of course, is no defense of Gaddafi, who is an evil bastard with the IQ of fresh Mississippi road kill, but rather an expose of the fiscally insane actions of the Fed, the debt-driven US financial system and the treacherous clowns that run it.

The Federal Reserve Bank is a tumor on the body of the United States of America. It should be removed. If there was ever an opportunity to do just that, it is now.

The one Congressman who has spent his career in pursuit of this goal, Ron Paul of Texas, is now the Chairman of the Financial Services Subcommittee on Domestic Monetary Policy and Technology, the Committee that oversees the Fed. This is Ben Bernanke’s worst nightmare and one of the greatest opportunities this country has ever had to forward the cause of economic freedom.

More revelations will come out about the Fed’s corruption. It is in their DNA. When they do, write Congressman Paul and thank him, because it was his legislation that forced the disclosure in the first place. And support any new effort he initiates to eliminate or curb the power of the Federal Reserve Bank.

Joseph Oppenheim said...

California is broke<<<<

Of course, complete nonsense! The net worth of CA's billionaires is about $250B. Not to mention CA's great and successful corporations like Apple, Google, Cisco, Amgen, Genentech, Qualcomm, Disney, Facebook, Chevron, etc, etc, etc, plus all other assets. A small one time tax on any or all of that would wipe out the deficit in an instant.

Current CA taxes compared to other states are not high, but moderate.

CA has always been boom and bust, with busts just a clearing out for greater booms. Anyone who can't understand that is, oh well!

CA recently solved future budget problems, requiring a majority, not super majority to raise taxes...recently, "That prompted Democrats to say they were ready to abandon talks and pursue alternatives such as gathering signatures for a November vote or finding a way to call a June ballot without Republicans."

Thank goodness for the GOP, because of their descent into complete mental dysfunction, the tide is changing against them.

CA is WEALTHY. Only fools don't realize that and don't want to pay the bills.

AIM said...

The Fed and Congress's policies will sink this country. America at large just doesn't understand what the FED is and what they are doing... if they did they'd abolish them. Americans don't understand that The FED is who creates inflation... no one else... ever. They are in collusion with the Treasury Dept and the White House and the big banks, destroying our dollar and our economy and our country right in front of our eyes with their ignorant and inapplicable monetary and fiscal policies. Adjusting interest rates, adjusting reserve requirements, printing money to buy US debt, etc. is all insane. And we condone it.

Jim in San Marcos said...

Hi Joseph

California still requires a 2/3's majority to pass a budget. They use to get around that by raising fees for this and that because it only took a majority vote. The last referendum closed that loophole. It takes a 2/3's vote to raise fees now.

A major reason so much of US production went off shore was to avoid taxes and government bureaucracy.

Jim in San Marcos said...


I agree with you, the average American doesn't know whats "under the hood" as far as economics goes. Inflation is something they have always lived with.

It's the way the government taxes the rich without taking their dollars and it works great!

The people in Congress go along with the whole mess, because the wheels haven't fallen off yet. But you and I know that could change real quick. I'm still kicking myself for not buying more gold and silver when it was cheap.

Joseph Oppenheim said...

I guess some STILL don't understand CA law, only part of budgets remain at 2/3, so there is a way to fill the deficit, with the right wording of either legislation or public vote......

Proposition 25 amended Section 12 of Article IV of the California Constitution.

The primary change to Section 12 of Article IV was the addition of a new subsection (e) that says:

(e) (1) Notwithstanding any other provision of law or of this Constitution, the budget bill and other bills providing for appropriations related to the budget bill may be passed in each house by rollcall vote entered in the journal, a majority of the membership concurring, to take effect immediately upon being signed by the Governor or upon a date specified in the legislation. Nothing in this subdivision shall affect the vote requirement for appropriations for the public schools contained in subdivision (d) of this section and in subdivision (b) of Section 8 of this article.

(2) For purposes of this section, “other bills providing for appropriations related to the budget bill” shall consist only of bills identified as related to the budget in the budget bill passed by the Legislature.
About the other comments about the average person not understanding economics, it goes deeper than that, try the quacks in high places who think cutting taxes is always the answer. BTW, sometimes inflation is good, like when we were spiraling down a deflation pathway, like we were. At this point, time to be concerned, but if the nation panics and turns on the brakes too much, deflation could reignite because of unnecessary layoffs. We are in an economic recovery, but a brittle one, which still needs some, moderate, inflation, while getting future plans in place. If Congress diddles too much, financial markets will react, and Congress will then be forced to respond.

Jim in San Marcos said...

Hi Joseph

Your right about only needing a majority to pass the budget, but there is one hitch, there can be no tax increases for that to happen. If they try to raise taxes even one penny, it goes to a 2/3's vote. ----Show me a democrat that can live on a fix budget;>)

Anonymous said...

The Fed government will shut down in the next few days if they don't meet their deadline. The best thing that could happen. We don't need them anyway. What a great way to get rid of 800,000 parasitic government workers that don't do anything for our country anyway (and have ridiculous salary and benefit programs). What a great way to cut government spending. Hopefully the IRS will close down too. Then we can just storm the Federal Reserve, hang Bernanke (actually I'd rather use a guillotine) and shut the Fed Reserve down too, and turn their building into a library or something useful. It's the end of the USA as we know it, and I LIKE IT!

Donald Trump for president!!!

Anonymous said...

It really could be the end of this country as we know it. We have a government that runs on borrowed money. Last month it spent 8x what it made in tax revenue. Obamas prediction for what the budget was going to be was off by about 100%.

Banks buy treasuries.
The Federal Reserve "prints" money and buys the treasuries from the bank, at a premium!
The banks use the money to build their reserves.
The government takes the money from their sold treasuries to cover its deficit spending.

Have you ever heard of such fiscal and monetary insanity?!

China is now starting to build itself up internally, stronger yuan. Japan needs to repair its catastrophe, rising yen. The USA's top treasury buyers will not be buying more treasuries, and Japan will probably be selling them off rapidly to fund their reconstruction. China is slowly diminishing its treasury holdings. The US won't have its two biggest friends to loan them money for much longer.

When all of this money and credit in the banks and foreign money hits the US economy there will be high inflation that the Federal Reserve will not be able to handle.

We are allowing Congress, Obama and The Fed to take this country on a ride to utter destruction. We will all pay dearly for electing the wrong people, our non-involvement and failure to police our politicians and government officials and our failure to prevent big business (bankers) from taking over the government.

We're doomed. Bye bye Uncle Sam-- we hardly knew ye.

AIM said...

I agree. And the very sad thing about this situation is that we are all going to suffer. As if this was an carefully orchestrated plan... we are all going to lose our purchasing power, our assets will deflate, our standard of living will drop, we will all be desperate about our personal sources of water, food, medical attention and energy. I don't see anyway of protecting myself from the economic and energy debacle that is coming over the next decade.

Maybe liquidate everything I have and move to Singapore, convert my money to Singapore dollars and open some sort of business there? I don't know.

Anonymous said...

The Fed. govt. has "shut down" twice before, with no long term, or even short term disruption.This is just a stare down contest to see who blinks first.
By the way, esential service are EXEMPT for a gov. shutdown. Essential services include the armed services, the border patrol.AND the IRS.

Jim in San Marcos said...

Hi Anon 12:29

I think it is a little more serious this time.

We elected these boneheads to Congress and they can't even function as expected.

Do we pay the furloughed workers for time not worked as we did last time? That's pretty good for a non planned vacation. As a taxpayer, I think that sucks. Make them work and then discuss options.

I think that Obama has earned this payback for sneaking the health care bill through. He did an incredibly stupid thing and arrogantly thought he could get away with it. Obama will probably be out of office before Gaddafi is.

Jim in San Marcos said...

Hi Anon 10:40

"Donald Trump for president?" It could be an interesting race.

I'm expecting a Hispanic Jewish Hooker to be the Democrats next Presidential candidate;>)

Need to pop some popcorn. The next election could be a very long movie.