Sunday, October 2, 2011

California's Debt Burden Soars

We have been paying close attention to California over the past few years since we continue to maintain that their situations could be foreshadowing of what's coming for the rest of us.  With that being said we find this headline today;

California's debt burden soars to nearly 8 percent

California will devote nearly 8 percent of its general fund budget to paying off debt this fiscal year, more than twice the share of eight years ago, according to a new report from Treasurer Bill Lockyer.

The state has long borrowed for massive public works projects intended to last across generations.

But state leaders and voters went on a notable binge during flush economic times in the past decade.

They approved bonds for parks, flood protection, classrooms, children's hospitals, stem cell research and high-speed rail. They borrowed in 2004 to bridge a budget deficit from the last recession.

As new bills stacked up, the state entered a historic economic downturn and revenues fell sharply over the past three years
.
The combination of higher bond payments and declining tax revenues has driven the debt burden to 7.8 percent of the general fund budget. Lockyer also blames a drop in tax rates this summer, after the expiration of 2009 temporary tax hikes.

The rate is more than double the 3.4 percent California devoted to debt in 2003-04.

California also faces a higher debt burden compared with other states. It owes $2,542 per person, compared with the national median of $1,066.

Lockyer's report warns that if borrowing continues to rise, "That growth will come at the expense of other vital public services. Those services already are under severe strain."

Read more: http://www.sacbee.com/2011/10/01/3951766/californias-debt-burden-soars.html#ixzz1ZgTeRzJP

Wow!  Sounds an awful lot like the U.S. Government....borrowing for lavish programs when times were good and imagining they could always borrow money from China, India, Japan and others to finance the good times!  And just like California who are seeing their borrowing costs (interest rate payments) rise...America WILL NOT be able to keep interest rates at zero for too much longer.  And when our rates start going up and our tax revenue continues to go down....then a real pickle will be upon us all.

I wonder how it will play out when California starts needing additional bailouts from the Federal Government to avoid bankruptcy or default?  Will they be deemed, "too big to fail"?  Will all of us who don't live in California then be forced to sign on to pay for their lavish lifestyles and lack of fiscal discipline?  And if that day does come, where will the Federal Government get the money to bail out California?

It sure seems as if we are edging ever closer to a big unraveling.

1 Comments:

Blogger April Swartzer said...

...we ought to be no less persuaded that the propitious smiles of Heaven can never be expected on a nation that disregards the eternal rules of order and right which Heaven itself has ordained... George Washington, First Inaugural Address In the City of New York
Thursday, April 30, 1789

October 6, 2011 at 10:00 PM  

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