[quote author="skek" date=1229739139]It wasn't long ago that we were pondering this question with respect to banks like Countrywide, IndyMac and Washington Mutual. I'm growing increasingly concerned about the solvency (and lack of leadership) of the State of California. Is a California bond default or bankruptcy out of the question? I don't think so.
Here's an excerpt from an <a href="http://www.ibdeditorials.com/IBDArticles.aspx?id=314496039321337">IBD piece</a> written by OC Assemblyman Chuck DeVore (who has announced plans to run for Senate in 2010):
<blockquote>By CHUCK DEVORE | Published in Investor's Business Daily
In the past 10 years, under both Republican and Democratic governors, legislative Democrats have presided over a doubling of the California budget, from $72 billion in 1998 to $145 billion. This is double the rate of population and inflation growth, and it is unsustainable.
How unsustainable? California may have a $42 billion deficit over the next 18 months, an astonishing 30% of revenue expected just a few months earlier. California may run out of cash by the end of February, causing state financial officials to vote on Wednesday to halt $4 billion in construction spending. A California bond maturing in 30 years yields about 6.89% ? 1.8 percentage points more than three months ago.
California has the nation's highest income taxes, the highest state sales tax rate, the highest gas tax and the highest corporate tax in the western U.S. And contrary to popular mythology about Proposition 13 (passed by the voters in 1978), the state's property taxes are at the national average.
Forbes magazine ranks California as having the highest business costs (taking into account taxes, labor and energy). The Tax Foundation ranks California as having the 48th worst business-tax climate, down from 38th just three years earlier. Only New Jersey and New York are assessed as more hostile to business.
Clearly, California does not have a yawning budget deficit because of a light, business-friendly tax burden. California has a spending problem, not a revenue problem.
Yet, in spite of all the overspending, majority Democrats are only offering one-time reductions in the spending of $8 billion. There is no talk of government reform without which any solution would last no more than a year.
California has America's most generous welfare rules. We have not fully implemented the historic welfare-to-work reforms signed into law by President Clinton in 1996, risking federal sanctions as a result. California even spends hundreds of millions of dollars on optional benefits for those in the U.S. illegally. Some state health and welfare programs are growing at a 7%-8% annual clip, with no letup in sight.
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With an 8.2% unemployment rate, America's third-highest, California workers are likely to see far greater pain in the months ahead as lawmakers resist reducing taxes on capital and wealth generation, and instead seek to increase taxes by $11 billion over the next 18 months.
This includes a 2.5% income-tax surcharge, a 10% increase in sales tax collections by increasing the base rate from 7.25% to 8%, and a $2.1 billion increase in the gasoline tax and others ? all on top of what are already the nation's highest income, sales and gas taxes.</blockquote>
Looks pretty grim to me.</blockquote>
I am watching this train wreck everyday. The legislature is so inept that it's just a plain joke-but it is not, as it is very chilling as there is going to be many years of real pain and suffering and a mass exodus of people and businesses leaving California because of the total mismanagement of State government not able to do their job. Tax increases are real nice shot in the foot when you will have soon 10% unemployment and continued sinking housing prices causing more foreclosures, personal and business bankruptcies and more job losses. It starts to make sense on the report of economic riots in the streets in the future...