Thursday, July 09, 2009

california - the shape of things to come

Market-Ticker | So California is now issuing "registered warrants" - a fancy name for IOUs.

This is occurring as a consequence of the cash flow finally catching up with them, and it serves as a warning to not only other states but also to The Federal Government - you can only lie about how much money you really have for so long; eventually you will start bouncing checks!

Major banks have said they will "accept" them through Friday. How much of this "deadline" is a pressure tactic to try to force the legislature to solve the budget problem is unknown, but this much is known about their "acceptance" - if you deposit one of these things it is a recourse deposit - that is, not only is it subject to holds but in addition if the state defaults on it the bank will come back at you for the full face value.

Is that possibility really the stuff of fancy? No.

The simple fact of the matter is that tax revenues have cratered as our economy "resets" to a more sustainable level. Nowhere is this more evident than in California, where the idiocy parade has been in full swing for more than two decades.

It is time for both California and the other states (as well as our federal government) to cut the crap, admit the truth - that this so-called "prosperity" of the last 10 years was nothing more or less than a scam built upon leverage and lies, and cut budgets back to 1990 levels immediately.

The problem isn't that tax receipts are too low, it is that expectations are unreasonably high, the so-called "economic growth" was in fact false and fueled by fraud, and like it or not the economy is going to contract to a sustainable level, which is almost certainly somewhere around 30-40% smaller than it was in 2007/2008.

Yes, this means things will get worse - plenty worse - before they get better. But there is no way out of this mess that avoids going through the center of it and recognizing the truth, whether we like it or not.

The longer we delay recognition and acceptance the worse the damage to our economy will be.

Choose California - and America.