Sunday, January 23, 2011

Belly Up

The state of Illinois is flat broke. So is California. There are in fact half a dozen states close to the edge. All the states except North Dakota are bleeding red ink. It's so bad that some in Congress are writing up legislation to allow states to declare bankruptcy.

The state of Illinois owes creditors 6 billion dollars. The state comptroller in Feb 2011 is paying the bills for Aug 2010. Drivers of state vehicles are seeing their state issued credit cards being rejected when they try to fill up the gas tank. Everyone is tired of not getting paid. No one want's to do business with Illinois. The legislature in Springfield believes the solution is raising tax rates. A huge tax rate increase for individuals and businesses that recently passed has neighboring states salivating. Wisconsin is aggressively wooing businesses to hop the border and enjoy lower taxes and a shiny new business friendly climate.

California is most likely the reason DC legislatures are crafting a bill to legalize bankruptcy for states. The state is billions in debt and there's no light at the end of the tunnel. Is it somehow poetic justice that the man most responsible for the decline of the Golden State is now faced with the carnage his policies have wrought? Is Gov. Jerry Brown at least a bit humbled by what he found oh so many years later? Possibly. California's suffering in the current economy is exponentially greater than almost every other state. The housing bubble hit the state especially hard. Public services for illegal aliens are a massive drag, but it is the state pension system that is killing California. Bankruptcy would allow the state a way out of the pension nightmare.

America basically has it's own Greece in California. Except that instead of a small minor economic power California has an economy the size of Italy. If California gets a Federal bailout then watch the floodgates open wide. The Cloward/Piven Strategy to overwhelm the government with social obligations will be complete.

One has to wonder if what's happened to America was the inevitable result of blind fate or of cynical manipulation. Probably both. A true unplanned capitalist free market society is equally as impossible as a successful totalitarian communist society. American capitalists see a billion consumers in China and a billion more in the neighborhood. With visions of cheap labor and selling product dancing in their heads coupled with encouragement from the governments in DC and Beijing a massive jobs migration was inevitable. So far the reality of an enormous consumer driven middle class in China has failed to materialize. Maybe it will someday...

In the meantime American's are losing their jobs and the government is forced to borrow billions from China to pay pension and unemployment benefits. Seems crazy, but what do I know?

In a catch 22 situation we realize that a growing, robust American economy would help fill both state and federal coffers, but that's not going to happen if the jobs keep going overseas while the government squeezes the remaining producer class even harder. The current paradigm is unsustainable. How long before the whole thing goes belly up?