Banana Republic of California

Wolf Richter's picture

Wolf Richter

The horse-trading sessions in Greece brokered by President Karolos Papoulias will most likely lead to new elections, and the inevitable: Greece’s exit from the Eurozone. The uncertain consequences for Greece and the rest of Europe will confound jittery financial markets. And while all eyes are fixed on Greece, a tiny economy on the worldwide scale, a much larger economy is heading deeper into fiscal disaster: California.

California has everything: stunning mountains and deserts, a breath-taking coast, delicious seasonal fruit and veggies, gourmet cheeses, a large variety of seafood, and grass-fed beef—well, and a mad cow, too (read.... The Costs of Trying to Keep Costs Down).

It’s the place where Facebook found the fertile soil to thrive, where Google and Apple and thousands of other companies made investors rich or went bust and took investors down with them. In other words, California is a great place to be. Or rather, it would be if it weren’t governed like a banana republic: Governor Jerry Brown, who is trying to do the right thing, just released his May revisions for the 2012-13 budget, the by now customary shocker that doesn’t shock anymore. In January, he’d estimated the shortfall to be $9.2 billion. Today, the hole has widened to $15.7 billion.

It kicks off the annual farce that elected officials perform for us to get around California’s balanced-budget requirement: “tough” negotiations interspersed with public posturing and non-public lobbying that end in a “balanced” budget—though revenue estimates are blue-sky numbers, and many of the cuts are either smoke and mirrors, or if they’re real, they’ll be stopped through court proceedings or derailed in some other ways.

Nevertheless, expenditures are down for the first ten months of fiscal 2012 through April, just not as much as hoped for: State Operations outlays dropped by 8% to $20.8 billion and Local Assistance outlays inched down by a fraction to $59.5 billion. Combined, expenditures so far this fiscal year dropped 6.5% to $80.2 billion. Under Governor Brown, the state workforce has shrunk by 30,000 positions, though pay raises saw to it that salary expenditures rose. But that’s about to change—because the Democratic Governor, best buddy to the unions, has suddenly embarked on a stunning strategy. Read.... Jerry Brown Pulls A Nixon.

Disappointing as the less than hoped-for expense reductions are, they’re the good news. The bad news is the steep drop-off in revenues, a sign of the shaky California economy, despite all the rhetoric to the contrary: For the first ten months of the current fiscal year, General Fund revenues dropped a chilling 10.7% to $65.6 billion, while Special Funds revenue was up 5.3%, for a combined decline of 6.5%—a deficit that was filled with $10.9 billion in “Temporary Loans.” To heck with the balanced-budget requirement.

Based on these numbers, Governor Brown today issued his revised budget for the fiscal years starting July 1. And it’s breath-taking in its exuberant assumptions:

  • The US economy will grow between 3% and 4% by late 2013.
  • By 2015, all of the US jobs lost during the Great Recession will have been recreated.
  • The California economy will create nearly half a million jobs by 2013. Construction, to decline in 2012, will suddenly jump by 6% in 2013.

As a result of these and other miracles, the Long-Term Revenue Forecast of the three largest sources—personal income tax, sales and use tax, and corporation tax—which together make up about 93% of all revenues of the General Fund, is estimated to look like this:



Tax revenues, according to the May Revisions, will summersault through the economic hoops facing California, and in doing so, they will leap from $80.1 billion to $107.7 billion by June 2016. In four short years, a jump of 34.5%! An annual rate of 7.7%. But, but....

There are reasons, namely the unassailable logic that “The total revenue generated by these three sources has grown at an average annual rate of 5% since 1987.”

And more reasons: tax increases and the “potential behavioral impact of federal tax law changes.” The budget assumes that the Bush tax cuts, extended through 2012, will actually be allowed to expire. Projections also include a surtax of 3.8% on specified unearned income that will go into effect on January 1, 2013. And with this taxpayer nightmare blowing across the land like a thunderstorm in Texas, the budget assumes that people will seek shelter by accelerating their 2013 capital gains, dividends, and some wages to 2012, causing an astonishing deus-ex-machina revenue spike of 11.6% in 2012-13. Yet, the May Revisions forecast a $15.7 billion deficit! Oh my. In 2013-14, revenues are expected to increase “only” by 3.1%, followed by another 10.4% spike.... 

And all this, while revenues in the current fiscal year, ending June 30, are forecast to actually decline by 6.9%!

And if indeed a miracle occurred and tax revenues were to jump like this, they would suck an additional $70.7 billion out of the California economy over four years. Not exactly a stimulus. But perhaps it can all be explained by the greatest boondoggle of all times, a mega-project that will eat California’s lunch for decades to come. Read.... “The Great Train Robbery,” California Version.

And here is an awesome and biting cartoon by Ben Garrison: how banks and their political “legs” step on the little people on both ends of the political spectrum.

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disabledvet's picture

California's just a Federal Program folks...just like the Post Office. Move along...

Mr. Noatak's picture

My opinions only, no facts here:

How can you have the 6th largest economy in the world if you operate at a loss? This means that you are producing less than you consume. You should not even be entered in the contest.

Also, a state cannot print its own money. So, how is a state deficit possible, even for five minutes. You pay your bills or you do not, right?

Lednbrass's picture

Its possible because like all states they sell debt to get by, likely under the assumption that DC will take care of them when it gets too bad (as happens now).  Californians really seem to underestimate how much they are despised outside their own state.

The fact that their state has the lowest credit rating in the entire country doesnt seem to concern most of them.

dolly madison's picture

In my life I have thought some good things about Jerry Brown.  I have thought that his ideas about zoning homes and work together was good.  I liked when he ran for president only taking small donations, so that he could not be bought. 

I was going to post on this thread about how California was looking into starting a state bank, which would go a long way to making things better here.  North Dakota has been doing great with theirs.  I went searching for a status of the bill related to studying the feasiblity a state bank in California, and found out that Jerry Brown vetoed it.  All this time since September, I had thought they were working on it, but it was vetoed.  Between that and Jerry Brown trying to not release the prisoners after ordered by a judge to do it, and Jerry Brown being against the legalization of marijuana, it is obvious the banks and corporations own him all the way. 

There is no representative to vote for.  None of them can be trusted.  They all bend to the banksters and corporate elite.  It is all going to fall apart.  How can it not?

IQ 101's picture

Jerry Brown ? i can not think of anything to say other than, the Calis will get what they voted for,it looks to me like LARGE bad news coming up?

I got out a long time back, what a dou8chebag shit hole , (can I say that here ?).

Fer fux ache! Jerry Brown! again? I hope everyone that voted for him gets it in the neck!

Whats in the water in California, liquid dumb? or is it just the new South America? W.T.F?


dolly madison's picture

Jerry Brown ? i can not think of anything to say other than, the Calis will get what they voted for

It's not like we had a choice.  Meg Whitman was even worse.  I am so freakin sick of representative democracy.

AldousHuxley's picture

truth is you need to cut services (screw poor) AND raise taxes (screw rich) to fix the problem.

actually that is needed for US at federal level as well.

Sandmann's picture

California's economy employs lots of illegals and low-wage bodies that use public services without covering their cost. It lives far too well as a state considering its tax base and has simply too many people not paying their way

eatthebanksters's picture

I don't recall exactly when it happened, somewhere between 3 and 6 years ago the number of social welfare recipients in California became larger than the number of people paying California income taxes.  Californians will come to a painful awakening that their dreams of creating  Utopia can only go so far...

Mike Cowan's picture

Burn in eternal hell, Democrats!

Freddie's picture

This does not even take CALPERS into account.  Anyone remember far back around maybe Pete Wilson and earlier how CALPERS was the poster child for a responsible and well run pension system?

The libs took over and it became a piggy bank for Ron Burkel (friend of Clinton & Dems), Sean Puffy Coombs and other businesses looking for capital.  CALPERS has been looted.

AldousHuxley's picture

california has politicians not getting enough fed dollars.


california gives $1.00 but gets back only $0.78 whereas Mississippi gets $2.00



plus california does have oil....

walcott's picture

CA economy = westside LA.

The coast rocks.


Anything inland you might as well squeal like a pig.

As fucked up as it gets!

mr. mirbach's picture

California drags the rest of the country down with their choice of elected officials in DC: Fienstien, Boxer, Peolsi, Issa, Waxman, Chu, Waters....

Hurry up and fall into the Pacific. 

SoCalBusted's picture

People just don't get it.  We're so fucked.

lolmao500's picture

Don't worry, Obama is gonna bailout California and win in november.

palmereldritch's picture

Gerry, legalize pot and you will immediately solve the state's fiscal problems. They will put your image on mountains or at least continually discuss and refine what...where would be the bitchiness place to put your crazy ass mug...

jomama's picture

i wonder how much of the state's resources are wasted prosecuting pot smokers?

Freddie's picture

They have legal "medicinal" pot stores on every corner like Starbucks.

California sort of ended with Charlie Manson.  As insane and F'ed Up as the Manson family was - the state today is even more insane.  It is like each year it became a bigger mad house with more illegals and more taxes and more programs. 

This f****r Moonbeam still wants the high speed rail and Obama will give him $10 billion or whatever it costs for it.


palmereldritch's picture

The Feds have been shutting down most of these clinics which would have been an incredible source of tax revenue and product development.  If you thought a tour of California wineries was a relaxing and incredible adventure for the senses, imagine what can be with California as the mother ship for pot cultivation and development...

Good flick here.  How Weed Won the West



Revert_Back_to_1792_Act's picture

This is another interesting movie.  Run from the Cure - The Rick Simpson Story.

This search on the Library of Congress archive of old newspapers reveals that doctors made announcements of using an extract of Indian Hemp to cure or help various diseases.  That is the very same thing that Rick is on about in the movie.  That movie has so many testimonies that it is impossible not to at least take notice of it.

I noticed that Indian Hemp and Cannabis are listed as two completely different plants on different pages in my old Henderson's Book of Plants.

I sure wish they still had this stuff available for when you get old and sickly.  Early America must have been an interesting place with original Coca Cola tonic and Vin Mariani for sale.  The old folks home must have been quite a place.

Shortened link to an old Newspaper advertisement.  Check out the endorsements!

The Pope endorsing Coca how times have changed.  Less Ordo, More Chao.


palmereldritch's picture

Thanks Revert, I'll check out the flick, Cheers

IQ 101's picture

Go and sell your nickel bags some where else,this is Z.H. not High Times,

I like a bit of Ganj but this is not the place to forward your drama.

The fucking brains on Z.H can not be replicated anywhere on the web, so we have to turn it into Cheech and Chong?

Yes we know weed is fun,but fuck off anyway. 

Seriously dude? where will u find info like this? and you want to advocate Canabis? I advocate a little Canabis too, but this is not the place.

palmereldritch's picture

This is exactly one of the places where this discussion should occur.  Put down the bong and don't forget the sarc tags...

Revert_Back_to_1792_Act's picture

According to my ancient book, one of the nick names for it was "The Leaf of Delusion".

I think his movie is discussing the economic, political and social impacts.  I don't think it hurts to consider things like that on Zero Hedge.

P.S. This clip is interesting.

Discussing drugs and such, this quote comes to mind.

"...or wrung from him the very opium in which he forgot his oppression and his oppressor." - Edmund Burke?


swamp's picture

BIGGEST TWO MONEY SUCKERS: Public Unions and Illegal Aliens.

Illegal aliens cost Californians billions each year in lavish social services, prisons, jails, courts, cops, medical, food, housing and on and on. I have first hand documentation of 18 years of this crap so don't tell me I don't know what I am talking about.

Second: UNIONS for public workers, established by Jerry Brown back in 1970's at his first go round. The salaries and pensions are lavish and equate with the Silicon Valley at its bubble peak. Across the board lavish salaries, perks, medical, pensions and early retirement. And you thought CONgress had it good.


MALKENHORST, BRUCE $42,472.05 $509,664.60 VERNON FUSTER, JOAQUIN $25,207.66 $302,491.92 UC LOS ANGELES GERTH, DONALD $23,635.76 $283,629.12 CSU SACRAMENTO GARRETT, WILLIAM $23,191.02 $278,292.24 EL CAJON STAHL, JAMES $22,587.99 $271,055.88 L A CO SANIT #2 SCHLAG, JOHN $21,725.87 $260,710.44 UC LOS ANGELES SCHACHTER, JULIUS $21,199.31 $254,391.72 UC SAN FRANCISC METTE, DONALD $20,083.31 $240,999.72 SACRAMENTO METR TOONE, ROBERT $19,800.53 $237,606.36 PALMDALE OKI, DIANNE $19,648.82 $235,785.84 STATE COMP INS


greensnacks's picture


The following data pertains to employees (State government, California State Universities, and Judicial Council) paid through the State Controller's Office Uniform State Payroll System in the April 2012 pay period.

"Average" state worker annual salary:  $80665 ... includes medical + pension

Stuck on Zero's picture

California is growing one industry by leaps and bounds: Indian Gaming Casinos.  There are hundreds.  There isn't a rural road in the state that doesn't have one of these huge, garish, neon, palaces.  That's where the revenue are going to come from.  Start spending.

Freddie's picture

The whole state has turned into Potterville.  Gambling, pot, porn, John Travolta, illegals, tainted meat, sky high taxes, and more. What a lib sh*thole.

Revert_Back_to_1792_Act's picture

Auto-tune the news California edition.

Also see Turtle Fence.

This is some intelligent discourse that you can dance to.


OldPhart's picture

Re:  The Turtle Fence

You won't believe what I'm doing this weekend.

Getting scouts to clear garbage from a turtle preserve here in the Mojave Desert.  We've been out there four times over the last two years.  Haven't even seen a lizard.

Land had to be purchased and set aside by a mine in order for them to use the land they already had permitted.

Revert_Back_to_1792_Act's picture

They never change the playbook.  From the Declaration of Independence.

"For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies:"

He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.

Here is something else for you to read.




Herkimer Jerkimer's picture

I'm sorry, I nodded off.


What was it that Governor Moonbeam was saying…?



world_debt_slave's picture

yes, this has been going on for years, I remember in the 90's when Pete Wilson, yes a Repub, was governor and took a couple two or three months to pass a budget. Then we had Gray Davis and then Ahhhnold, now full circle back to Moonbeam. This can has been kicked to death.

SgtSchultz's picture

As California struggles against the debt death spiral, we are getting to watch a genuine reality show of Atlas Shrugged unfold before our very eyes.

aphlaque_duck's picture

Yep, I went Galt and got the fuck out of that place and never looked back.

lolmao500's picture

Put a fence around it, nuke it from orbit.

Freddie's picture

Shame Sigorney is daddy's rich girl and a gun banner. Libs hate guns except in their movies.

palmereldritch's picture

Hey Freddie...Why always the Left this? the Muslims that?

You have what? Two feeble melodies you plunk out on your tiny little piano?

Concept for the day: Hegelian Dialectic

tempo's picture

Everyone I know in CA works for the Govt. and has a very large pension w lifetime medical coverage. They don't give a poop about the deficits and the antibusiness environment. They want everyone to work for the Govt. Its great. They will not even discuss the possibility of CA no paying 100%+ of annual wages for their pension. You know..they are in a Union and the union members have a contract. Also they want everyone to belong to a Union, hug a tree, support gay marriage, take many paid holidays, use all possible sickdays, etc. etc.

greensnacks's picture

I find three groups of state workers - those who live to serve the unions, those who despise the unions and the majority of everyone else who buy into whatever the unions are preaching, which is usually promises to negotiate imaginary pay raises.  The unions breed mediocrity and hinder any efficiencies that may obsolete an individuals job.  Still, some of us cheer the victories won in Wisconsin and right-to-work states. We talk about privatizing public funded programs and point to the PIIGS as a very scary reality for CA's future. Many of us would be more than willing to make concessions, but those few "representing" the workers won't budge on a single dollar increase for parking lot maintenance.

I fear we rightfully deserve whats coming.



PoliticalRefugeefromCalif.'s picture

You have a point but despite the rosy picture you paint the State of Confusion has some negatives as well, such as it's gang infestation, utter corruption at every state level, a third world central valley, roads that haven't been repaired since Gray Davis was in office, inner cities have been converted to disease incubators, hospitals closing due to illegal aliens overload and a state congress that might be confused for a mental ward in saner times.

The Bureau of Indian Affairs might be better run than the typical state agency.

I guess in the interests of fairness one could say the legislature is actually just a hybridization of the gang infestation I mentioned before so we will just split that point.

lolmao500's picture

I think he was saying that to explain the sheer insanity of people living in Cali on the government dole. Not actually praising any of it.

Freddie's picture

Well who is one of the most famous Californians in history?  Probably Charlie Manson.   The California Dream sort of died with Charlie's murders.  The state govt/unions make Manson look sane.

eatthebanksters's picture

the most famous Kalifornian?  Ahnold or course!  At least he wouldn't let the legislature rise our taxes anymore!

Dirt Rat's picture

Charlie was born in Kentucky and spent his formative years in Indiana, including a stint in the Gibault School for Boys in Terre Haute. His mother moved the family to Illinois after that and then he went to California. So, no, he's not exactly a Californian.

palmereldritch's picture

You seem to cite Charlie a lot on this thread.  Here's some purported history:

Consider that Manson was part of the hippie movement at the time of the CIA's project, MKULTRA, which implemented the use of drugs in order to conduct mind control experiments.

It appears that part of Manson's own supply of LSD may have come directly from the CIA. A new type of LSD known as "Orange Sunshine" was being used by the Manson Family immediately prior to the Tate-LaBianca murders according to Family member Charles "Tex" Watson, who wrote in his prison memoir that it was the use of Orange Sunshine LSD that finally convinced him that Manson's violent, apocalyptic vision was real.

So it came to pass that Charles Manson was stuck in solitary confinement at Folsom Prison when a new inmate was placed in the adjoining cell. It was Tim Leary, who was eventually captured with Joanna Harcourt Smith, who later admitted working for the DEA. "They took you off the streets", Manson informed Leary, "so that I could continue with your work." Charlie couldn't understand how Leary had given so many people acid without trying to "control" them.

With all this in mind, consider that if a ex-convict-turned-hippie like Charles Manson could program people to kill, then why not the U.S. Government?

In the book, Helter Skelter, Manson prosecutor Vincent Bugliosi discussed Manson's programming techniques in depth, likening much of Manson's programming abilities to those used by the U.S. military.


Hulk's picture

About that mad cow, instead of killing it, the Kalifornians have decided to send it to anger management class...

orangegeek's picture

California turns to some form of austerity - that's deflationary.