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LuckyOne

You Ain't Seen Nothing Yet ......

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What will actually happen to the people of California if the state defaults on paying its debts?

I mean, the Chinese can't repossess the place and drag it to China, can they?

If they don't pay their debts and instead just start using the annual tax "take" to fund only what they can afford each year, what can the lenders actually do?

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For any of us (me included) who might have been wavering ......

http://www.bloomberg.com/apps/news?pid=206...&refer=home

If California were a country, it would have the eighth- largest economy on Earth. Given those advantages, the notion that California might default on its government debt might seem farfetched.
There is an old joke that a borrower dies if everyone stops believing in him. A look at the history of financial crises suggests there is a kernel of truth in this.
Imagine, for example, that California returns to credit markets in the coming months simply to roll over some of its expiring debt. Maybe the state borrowed money from China for two years back in 2007 and now has to borrow again to give the Chinese their money back. What happens if, seeing the catastrophic budget situation, lenders decide to shun California altogether?

If that happens, California would have to default on its obligation to give the Chinese their money back. It might do so by extending the terms of the existing debt, but that would be, nonetheless, a default, and a run on California debt surely could ensue.

Once a panic occurs, similar assets tend to be swept up in the wave. Bad news spreads. Witness the run that occurred during the Asian financial crisis of the late 1990s.

So if the unofficial eighth-largest economy fails on its debt, might the debt for the largest economy go with it?
That’s why the California budget crisis may well lead to a second financial calamity that would be far worse than anything experienced over the past 18 months.

We are still in the relatively early stages of this meltdown.

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Agreed.

Similar problem in the EU too. The ECB can print money while the member states can't.

California is in a similar position to the PIGS (Portugal, Italy, Greece Spain).

vouchers for the PS workers to spend.

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What will actually happen to the people of California if the state defaults on paying its debts?

I mean, the Chinese can't repossess the place and drag it to China, can they?

If they don't pay their debts and instead just start using the annual tax "take" to fund only what they can afford each year, what can the lenders actually do?

they will inflate the debt away

it is their only option now , the writing has been on the wall since the reagan era

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What will actually happen to the people of California if the state defaults on paying its debts?

I mean, the Chinese can't repossess the place and drag it to China, can they?

If they don't pay their debts and instead just start using the annual tax "take" to fund only what they can afford each year, what can the lenders actually do?

Lenders can stop lending to California and the United States. As mentioned in the original article, the consequences of this will make the problems of the last 18 months or so look miniscule in comparison.

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you mean you didnt see the box on the last ballot marked: tick here to keep your MP properly paid, in secret.

Nah, I was too busy writing 'these scumbags are a bunch of lying, cheating slimeballs' on the ballot paper.

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There's a crucial difference between state and federal debt though. The Californian state government can't print money. The federal government can.

Agreed.

Similar problem in the EU too. The ECB can print money while the member states can't.

California is in a similar position to the PIGS (Portugal, Italy, Greece Spain).

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There's a crucial difference between state and federal debt though. The Californian state government can't print money. The federal government can.

I don't see what real implications that will have.

"For the greater good" springs to mind.

They won't let a few states fail intentionally (well apart from detroit...obviously <_< ).

They WILL print their way out of it, which will fail.

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California is in such a bad way becasue it allows the people to decide... crazy thought I know but when given an option say of raising taxes and cutting expenditure to balance the books... they say no.... its a lesson for us all... government needs to govern the people, even problems like we are currently going through casued by bad government would look like a flea bite if you allowed the general populus to vote on say tax and expenditure policy.

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hey you might be right about that BlooLoo. Didn't I read a post on here about staff being paid in vouchers ?

Ithink it was Latvia were considering it.

My point about that was who is going to pay the people who dish out the goods and accept the vouchers...I sure the rest of the supply chain wont be too cheery to a shopkeeper offering to pay for his mars bar shipment with vouchers issued by a government who cant afford to pay their bills.

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California is in such a bad way becasue it allows the people to decide... crazy thought I know but when given an option say of raising taxes and cutting expenditure to balance the books... they say no.... its a lesson for us all... government needs to govern the people, even problems like we are currently going through casued by bad government would look like a flea bite if you allowed the general populus to vote on say tax and expenditure policy.

Yes, I agree - far more democracy in California than we have here.

I remember in one election the people of San Jose had an option on the ballot paper whether to pay an extra 1 buck a month in tax to have the BART - Bay Area Rapid Transport system - extended from San Francisco to San Jose. They voted yes and it is a simply superb, cheap and CLEAN piece of overground and underground air-conditioned public transport.

We should have such options here in the UK.

Our democracy has not matured or grown. It is stuck in the dakr ages and deliberately so as it simply benefits MPs.

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Yes, I agree - far more democracy in California than we have here.

I remember in one election the people of San Jose had an option on the ballot paper whether to pay an extra 1 buck a month in tax to have the BART - Bay Area Rapid Transport system - extended from San Francisco to San Jose. They voted yes and it is a simply superb, cheap and CLEAN piece of overground and underground air-conditioned public transport.

We should have such options here in the UK.

Our democracy has not matured or grown. It is stuck in the dakr ages and deliberately so as it simply benefits MPs.

you mean you didnt see the box on the last ballot marked: tick here to keep your MP properly paid, in secret.

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