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Banana Republic of California
Wolf Richter www.testosteronepit.com
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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California Housing Implosion at Dr Housing Bubble:
Last week J.P. Morgan Chase, a darling of the Federal Reserve, reported a $2 billion trading loss on “synthetic derivatives” yet still had the audacity to state no further regulation was needed. Whoops. What we have here is a system of phony numbers and massive speculation. This plays into the giant pool of shadow inventory sitting in bank balance sheets while trillions of dollars went to bailout these banks.
Even accounting standards were frozen for these speculators. Instead of working to increase transparency and help the overall American taxpayer they instead are using the same leverage to gamble on global stock markets.
http://www.doctorhousingbubble.com/brave-new-economy-california-budget-i...!+Mail
"Last week J.P. Morgan Chase, a darling of the Federal Reserve..."
Correction:
Last week J.P. Morgan Chase, shareholder of the Federal Reserve...
California's fiscal problems are all the result of its failure to invest in the California space program that Governor Jerry ("Moonbeam") Brown proposed more than 30 years ago. If they had done that back then, California would be mining the asteroids by now and platinum and other precious metals would literally be raining down from the heavens.
California is extremely lucky to have a realistic and clear-headed visionary like Jerry Brown at the helm to guide them out of their current troubles.
I don't live in Ca so I'm laughing hysterically. Wasn'nt he also the one that decided it would be a good thing to have govt employee unions tha would feather his campaign funds?
He's also the asshole who decided to tax out of state pensioners that had worked in the state while earning the pension.
There is a North American entity even more bankrupt than California. It's called Ontario, Canada. And Ontario doesn't attract near as much attention as it should be. Just some basic stats:
California:
Deficit: $16billion
Net debt: $612billion
Population 38million
GDP $1.9 Trillion
Deficit/capita: ~$420
Ontario:
Deficit: $15 billion
Net debt: $250billion
Population: 13million
GDP: $612 Billion
Deficit/capita: ~$1150
OMG. That is sick. Ontario probably almost beats Chicago. I was watching the Greece video. They made sure under austerity that the cops and military get money. Ditto the Toronto cops. The Montreal and vancouver cops go easy on rioters but Toronto cops are real thugs. Protecting their money.
Yeah, but...
The Canadian Dollar is worth more!
Duh!
Must be The French connection
Plus ca change...
Way...,
like...,
so...?
Totally whatever.
Where does one draw the line between positive exuberance and institutional insanity?
Yeah expecting positive revenues in the next couple of years is sheer hysteria based unicorn sightings, but then Welfarefornia is the home pasture of that magnificent skittle shitting beast.
they ought to rip that bear right off the flag and put the unicorn where it belongs.
but a case can be made for keeping the bear I suppose- after all, he ain't going anywhere soon...
straight for the lighthouse- full speed ahead- "good job Brownie" takes on a complete new meaning.
As a result of these and other miracles
The power of positive thinking.
Yeah, just bring in millions of more peasants from Mexico and California will be paradise again.
Surely America will be a utopia if it has a billion people like India and China. We'll all be millionaires then, and all we'll have to do is just put our money in some internet stock and all of us will be the next Gates or Buffett. Beautiful women, who will remain young and beautiful forever, will flock to us, and we'll breed with them and have 20 kids each, and each of those kids will grow up to become a billionaire. With the currency retaining it's purchasing power, of course.
And then we'll invent a magical pill that can make us young again, so we can repeat it over and over and over, until the end of time itself. Death will be conquered.
Yep, that's the ticket. Just keep on adding more Mexicans, and we'll eventually conquer death.
I believe it, I'm an optimist in America at the turn of the millenium, the greatest country on Earth.
Dream act....bytchez!! Everybody knows we can increase GDP with degrees in Latino Studies, Womens Studies, and Liberal fucking arts degrees.
My sister is working on her credendial, to teach math. Requirements? Liber-fucking-ral arts degree. Are you fucking shitting me? We got unemployed PhD's, retiring engineers, and in order to teach they need obtain a fucking liberal arts degree?
Substitute "Progressive Brainwashing" for "Liberal Arts" and thou shalt find enlightenment!
Californians got what we deserved giving this asshole another bite of the apple.
Fucker does an end run around prop 13 (which he always hated) and slams homeowners with a $250 hit so he can take care of the teachers union.
Fucker does an end run around prop 13 (which he always hated) and slams homeowners with a $250 hit so he can take care of the teachers union.
Can you tell more about this. I am in California, but I don't watch TV anymore, so I am not getting local news. I did search on this, but I could find nothing about property taxes being higher.
California could be a country in their own right, they are at least a third of the US GDP if not more. If they go down it will seriously damage the US.
Traditionally, the Sixth largest economy in the world. It is the Big Elephant. If they can bring it down it will be one very big, dangerous domino for the demise of free market capitalism.
Whatever hodge-podge of parasitic, pollyannish, Cultural Marxist & Economic Fascist, Big Landed & immigrant farmed, delusional Statist idealism California is,
it ain't free market capitalism that's dying there. The free marketers will move elsewhere, and the Statists can die in their own filth. (Learn to swim, learn to swim, learn to swim)
Fuck 'em. Couldn't happen to a better bunch of hollywood Zionists, gangbangers, Defense contractors and champagne communists. (Learn to swim, learn to swim, learn to swim)
Let California be the example that steers other states back onto the straight and narrow. Let California be the whispered warning to millions of future Americans who want their cake and eat mine too.
(Cause I'm prayin for rain, I'm prayin for tidal waves)
I don't see why California can't come up with 20 or even 50 Billion a year more in Revenue for vital programs in education and healthcare when you consider the state is nearly one third of the US GDP and the Federal Government has a projected 2012 Revenue of over $ 2 Trillion. The problem is pretty simple. The top 10% in California have refused to pay their share - unlike the Greatest Generation. I am ashamed to say we baby boomers and Gen X have decided we simply are not going to investin Gen Y and the Millenials the way our parents and granparents invested in us. We should be put down early for this betrayal of the American dream.
The Greatest Generation paid almost NOTHING in taxes. Fuel tax? Not on your life. Property tax? If you brought that notion into a bar discussion in 1950, you'd very deservedly have your ass beaten.
Take your elitist, big government idealism and shove it.
No one should pay a dime to these scumbags, including your ever elusive "richest 10%" target. The top 10% pay over half of the taxes. This parasite that is the Government of California needs to go away.
Why is it libtards like Hanks and Spielberg plus Tom Brokaw always bring up the Greatest Generation as they make a buck off them. I am sick of this greatest generation shit. The banksters squeezing Germany created Hitler along with the House of Roth. The murder of 50 million innocent people on all sides was good for business.
CA is roughly 15% of US GDP.
California deficit $16 Bil
Greece (1/3 size) $400 Bil
Are you honestly trying to claim that Greece runs a 400 billion annual deficit? Really? You honestly think they run an annual tab of 130-150% of their actual GDP?
Let me guess- California public school product?
Not so. You neglect CA unfunded liabilities, ie. pensions. Unpayable pensions will cause mayhem.
The Greek budget deficit is $400b?
Greece has a substantial deficit - probably much larger than advertised - and substantial debt - again larger than advertised - but Greece's annual deficit is nowhere near $400b. Probably more like $21b.
JPM just lost probably 1/4 of the entire CA budget deficit, but it's just fine and Jamie will still get a bonus this year. CA is the 8th largest economy in the world, but a deficit of just a few billion more than JPM can lose in an afternoon means a depression for millions. What is wrong with this picture?
Because JPM will fire people, and refine its business processes to achieve/maintan profitability. Either that or it will borrow cheap from the Fed, and loan long to CA. CA, not so much. Governments can merely point a gun to taxes, the lessons of thrift are never learned until there is blood in the streets. Governments will keep throwing wads of cash down the shit hole of bad "investments" and public unions, because it's other fucking peoples' money (OFPM).
FFS don't make me defend JPM again.
Did you mention the fact that with all of the "drastic" cuts Brown made, the state budget is still increasing by a rate of 5.6% from last year, even as revenues are declining?? Gee, those are some pretty painful cuts...
Despite cuts to benefit programs, the high unemployment rate means many more people drawing benefits.
This is the heart of it. There's no hope if the State can't cut it's own mammoth bloated budget. And it can't. So no hope.
Uber Allies!!!!
Dead Presidents?
Dead Kennedys! - http://www.youtube.com/watch?v=UW8UlY8eXCk&feature=related
California dreamin! Let pray the Bernak inflates their woes away, before they cripple everyone with some of those awesome IOU's again. If you won't accept your own IOU as payment, you know what your worth really is.
inflatining it away, merely kicks the can, and avoids the lesson that TASTAAFL needs to teach.
Seeing the AMAZING factories (two now, maybe another this evening, they run them 24 hours) here in South Korea, I feel like if America does not right the ship soon, we can stick a fork in it.
NOBODY works harder than Koreans. California looks to be a lost cause, even with Silicon Valley.
I have seen the future, the jobs are NOT coming back to the USA unless some attitudes change BIG TIME.
Thanks Wolf for your columns!
Love Ben Garrison, he's the cartoonist of the 99%.
http://www.singledudetravel.com/2012/04/benjamin-garrison-cartoonist-for...