It sure seems like California is insolvent. Today we heard that Arnold Schwarzenegger has contacted Hank Paulson to inform him that the State has liquidity problems and require assistance. California ranks as the world’s 9th largest economy with a population of over 30 million people, so it’s quite disturbing.
The state had an economy that was going Gangbusters during the boom. It certainly helped U.S. GDP growth a few years ago. Now home prices down in California – San Diego, down 31% in San Francisco, down 28%, Los Angeles, down 30%. And even goes housing, so goes California. The economy is a shambles, unemployment is soaring and tax revenues plummeting. A city in California has already gone bankrupt. The entire state could be next?
Will California become America’s first failed state?
By Paul Harris
Los Angeles, 2009: California may be the eighth largest economy in the world, but its state staff are being paid in IOUs, unemployment is at its highest in 70 years, and teachers are on hunger strike. So what has gone so catastrophically wrong?
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 Kenneth 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.”
Full article at Paul Harris The Observer, Sunday 4 October 2009