Will California become America's first failed state?

Peacenik hasn't posted anything about the economy for a while. Peacenik has been watching in disbelief as the stock market continues to rally. Meanwhile insiders are selling like crazy. Revenue in New York State collapsed by 38% in the last quarter. State after state is unable to balance its budget. The big banks in the states are still being kept afloat by shady accounting and public tax dollars. And California is paying its workers with IOU's.

But the market goes up and in Canada the housing bubble keeps bubbling along. Of course the Canadian banks just got another handout from the feds. And mortgage rates are artificially low. And federal and provincial deficits across the country have exploded. And unemployment and underemployment is growing. And pension plans, big and small, are unable to keep either their promises, nor their legal obligations. But all is good. Until the Minsky Moment arrives. Then watch out.

Paul Harris

Los Angeles, 2009: California may be the eighth largest economy in the world, but its state government is issuing IOUs, unemployment is at its highest in 70 years, and teachers are on hunger strike. So what has gone so catastrophically wrong?

Patients without medical insurance wait for treatment in the Forum, a music arena in Inglewood, Los Angeles. The 1,500 free places were filled by 4am. Photograph: John Moore/Getty Images

California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.

But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kevin Starr, who has written an acclaimed history of the state, recently declared: "California is on the verge of becoming the first failed state in America."

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California Collapsing

Peacenik has posted about the California situation before. It was bad then. It is worse now. And remember California is the future.

Peacenik tries to figure out why Ontario should be any different from California. Ontario's manufacturing is going the way of the dodo bird. Real estate is over priced. The TSX plunged almost 500 points yesterday. Unemployment is soaring. Pension plans are failing. Why should Ontario be any better off than California? Peacenik says it isn't. Cash out, Cash in, and prepare for collapse.

by Martin D. Weiss, Ph.D. 06-22-09

Washington and Wall Street seem to be treating California as if it were a sideshow in the financial circus of these turbulent times.

It’s not.

California is home to the largest manufacturing belt in the United States and to Silicon Valley, the nation’s largest high-tech center.

California is America’s most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.
California's Mortgage Nightmare

And it’s collapsing.

Major California counties are ground zero in the continuing mortgage meltdown:

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Schwarzenegger declares 'day of reckoning'; Wells Fargo CEO says California in 'financial ruin'

California is in dire straits. Hoping to find opportunity amidst the angst, Schwarzenegger declares 'day of reckoning'.

Declaring that "California's day of reckoning is here," Gov. Arnold Schwarzenegger said today the state should turn its dire budget straits into an opportunity to make government more efficient.

Speaking to a relatively unusual joint session of the Legislature and other constitutional officers, Schwarzenegger acknowledged the billions of dollars in spending cuts he has proposed to close a $24.3 billion hole in the budget will be devastating to millions of Californians.

"People come up to me all the time, pleading 'governor, please don't cut my program,'" he said. "They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice. It's an awful feeling. But we have no choice.

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Meanwhile in Russia unemployed workers are blocking a major roadway in St. Petersburg. In Canada the TD Bank is projecting a $170 billion federal shortfall. And the fallout from GM's bankruptcy has barely started. And the public's apparent reaction? The stock market soars. Peacenik said it before, the collapse of California is a preview for the rest of North America and the world.

Education? Forgeddaboutit. Health care? Forgeddaboutit. Retirement? Forgeddaboutit. The Environment? Forgeddaboutit. What will it take to wake the sheeple up? How about no food on the table or no gas at the gas station. What does Jim Cramer think? Last night he said that we are in a new bull market. That all is well. That's comforting.

California, a Broke State, Reels as Voters Rebuff Leaders

By JENNIFER STEINHAUER
Published: May 20, 2009

LOS ANGELES — Direct democracy has once again upended California — enough so that the state may finally consider another way by overhauling its Constitution for the first time in 130 years.

Gov. Arnold Schwarzenegger returned home from a White House visit on Wednesday to find the state dangerously broke, his constituents defiant after a special election on Tuesday and calls for a constitutional convention — six months ago little more than a wonkish whisper — a cacophony.

As the notion of California as ungovernable grows stronger than ever, Mr. Schwarzenegger, a Republican, has expressed support for a convention to address such things as the state’s arcane budget requirements and its process for proliferate ballot initiatives, both of which necessitated Tuesday’s statewide vote on budget matters approved months ago by state lawmakers.

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The west coast has always been viewed as the place to go if you want to see the future. Fashion. Cultural trends. Political trends. And yes total collapse. The 10th biggest economy in the world is in a state of total collapse. Housing prices continue to fall. Unemployment continues to rise. Institutions continue to implode.

Does California provide a glimpse of our future. Peacenik hopes not but thinks so. The voters of California had a chance to weigh in on how to solve the economic crisis. Did the voters realize that there is no solution? Or did they simply continue with the anti-tax mantra of the last 30 years? Were the voters selfish or stupid or both? Peacenik doesn't know. But California is on the leading edge of living a new standard of living. A lesser one. A third world one. Here come the cuts to healthcare, education, and welfare. Here come 20,000 prisoners, on the street, cause the state can't afford to keep them in prison.

Will Canadian voters vote for progressive solutions when their turn to vote comes? Or have 30 years of brainwashing so engrained libertarian ideas that Canadians' too will vote against their own self- interest? Is there a way to prevent collapse? Peacenik thinks probably not.