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California's Economy Collapsing

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http://www.marketoracle.co.uk/Article11503.html

California is home to the largest manufacturing belt in the United States and to Silicon Valley, the nation’s largest high-tech center.

California is America’s most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.

And it’s collapsing.

Major California counties are ground zero in the continuing mortgage meltdown:

Los Angeles County with 5.32 percent of mortgages 90 days past due … Monterrey County, 8.02 percent … Imperial, 8.13 … San Bernadino, 8.66 … Madeira, 9.21 … San Joaquin, 9.53 … Riverside, 10.2 … Merced, 10.57 … and more!

California’s inventory of foreclosed homes is skyrocketing. Home prices are plunging. And the impact of surging unemployment is just beginning to show up in the data …

Unemployment rates in the counties around Silicon Valley are frightening - seems the NASDAQ is being driven by tech job cuts?

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it starrted in america. in 2 years it'll hit england.

lol

im just nailing my feet to the floor now, you do what you like.

this is going to be a CHARLIE DONT SURF moment for me out of Apocolypse Now.

mmmm problem..... cant surf with feet nailed to floor..... doh!!

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What California obviously needs to do is borrow more money and spend it all on a fiscal stimulus.

You know it makes sense....

dont you mean grow its way out of recession? That sounds like a good idea. A couple of zabtrabilmillion should tie it over till next week.

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But the fed can and they can buy California debt with digitized air

So why haven't they?

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Guest sillybear2
Ahhh....but California can't print.

So the solution is.........secession? :ph34r:

Arne is already paying state employees in IOU's. He's ahead of the game of course, when the UK is finally hit with a sovereign debt crisis Brown plans to pay people in Nectar points.

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Arne is already paying state employees in IOU's. He's ahead of the game of course, when the UK is finally hit with a sovereign debt crisis Brown plans to pay people in Nectar points.

As has been noted elsewhere, an IOU on a fiat currency is an IOU on an IOU.

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Guest sillybear2
As has been noted elsewhere, an IOU on a fiat currency is an IOU on an IOU.

IOU²

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Arne is already paying state employees in IOU's. He's ahead of the game of course, when the UK is finally hit with a sovereign debt crisis Brown plans to pay people in Nectar points.

California here we come.

Right back where we started from.

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Arne is already paying state employees in IOU's. He's ahead of the game of course, when the UK is finally hit with a sovereign debt crisis Brown plans to pay people in Nectar points.

:lol:

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"5.32 percent of mortgages 90 days past due "

Wow, 30 days 2% would be a trigger for most to have extra funds put in. 5.32% is like draining money directly from the system, you can't replace it fast enough

to make any difference; and for it to be 90 days. :blink:

Just to add context, and this is only Los Angeles but the UK economy is below California in terms of population. Around $2 trillion versus $1.8 trillion for Cali ?

Edited by Tom Peters

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Guest Steve Cook
As has been noted elsewhere, an IOU on a fiat currency is an IOU on an IOU.

yes

I was was wondering when someone would point that one out...... :lol:

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Of course there is a risk some of these IOUs might not be honoured.

What you need to do is divide up small amounts of IOUs from lots of different sources into Collateralized IOU obligations, and use them as a currency. That way the risk disappears...

Edited by mikeymadman

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In a way I feel a bit sorry for California - Annually they send about $25 billion more to the federal govt than they get back - enough to plug the deficit.

They hardly get lessons in fiscal responsibility from Washington anyway.

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Guest Parry

Just had this Martin Weiss piece emailed to me.

Washington and Wall Street seem to be treating California as if it were a sideshow in the financial circus of these turbulent times.

It's not.

California is home to the largest manufacturing belt in the United States and to Silicon Valley, the nation's largest high-tech center.

California is America's most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.

And it's collapsing.

Major California counties are ground zero in the continuing mortgage meltdown:

Los Angeles County with 5.32 percent of mortgages 90 days past due ... Monterrey County, 8.02 percent ... Imperial, 8.13 ... San Bernadino, 8.66 ... Madeira, 9.21 ... San Joaquin, 9.53 ... Riverside, 10.2 ... Merced, 10.57 ... and more!

California's inventory of foreclosed homes is skyrocketing. Home prices are plunging. And the impact of surging unemployment is just beginning to show up in the data ...

Worst Unemployment in 64 Years

The state's unemployment rate has surged to 11.5 percent, the worst since World War II.

Last month, California lost 68,900 jobs. And since July 2007, it has lost 859,000 jobs, including 739,500 just in the past 12 months.

Even if the economy recovers, an unlikely scenario in my view, economists agree that California will continue to be slammed by layoffs, at least through the end of this year and probably well into 2010.

And even assuming a national recovery, UCLA's Anderson Forecast projects an average unemployment rate of 12.1 percent from this fall through next spring.

What about without a national recovery? California's jobless could go beyond 15 percent.

Worse, if you include part-time workers seeking full-time work plus workers who have given up looking entirely, it could reach 25 percent, exceeding the worst national unemployment levels of the Great Depression.

"Our wallet is empty.

Our bank is closed. And

our credit is dried up."

These are not the words of a Dr. Doom in New York or a forlorn banker in Georgia. They represent the confession of Governor Arnold Schwarzenegger before a rare joint session of the California legislature ... and with no exaggeration!

The state faces a stunning $24.3 billion budget deficit, even assuming no significant deterioration in the economy from this point onward. And the state has lost virtually all hope of President Obama declaring, "California is too big to fail."

California State Treasurer Bill Lockyer tried to make that argument to Washington, and did so with great vigor. But he was rejected. After the long line-up of failed companies with hat in hand in recent months — on the steps of Congress or the White House lawn — some folks in government finally appear to have learned how to just say "no."

"You're on your own," is the message from the president to the governor. "Beyond your share of the stimulus package, that's it! No more!"

Result: The inevitability of massive state cutbacks, including large numbers of state jobs getting axed — all while the California jobless rate is already 11.5 percent.

How many state jobs are in jeopardy? Right now, Schwarzenegger is proposing laying off 5,000 state employees, as well as slashing education and social welfare programs. But the Anderson Forecast projects that Schwarzenegger's budget cuts will eventually result in 64,000 job cuts from state government plus countless private-sector and local government jobs.

Massive Downgrades Coming

California's credit rating is already the lowest among all U.S. states.

But with Moody's, S&P, and Fitch still greatly influenced by massive conflicts of interest, it's not nearly low enough.

And sure enough, on Friday, Moody's tacitly admitted as much, announcing that it may have to cut California's rating by several notches in one fell swoop!

Standard & Poor's put California on watch for a possible downgrade a few days earlier. Fitch did the same May 29.

The big problem: Once downgraded, California's rating is likely to fall below the minimal level legally required for most money market funds, forcing these funds to dump California paper posthaste.

Moody's wrote:

"If the Legislature does not take action quickly, the state's cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July. ... Lack of action could result in a multi-notch downgrade."

But lack of action is precisely what Sacramento is now becoming most famous for. In fact, in their latest scuffle, Democrats proposed a budget that would raise $2 billion from cigarette taxes and oil companies. But the governor promptly vetoed the plan. So now Sacramento is in a new, escalating battle over the deficit just weeks before the state is expected to run out of cash to meet payroll and other bills.

State officials continue to insist that a state default is unthinkable ... much like GM executives said their bankruptcy could never happen.

In my view, there is a very HIGH probability that California will default.

It's obvious its debt merits a junk bond rating from every Wall Street rating agency.

And it's equally obvious that the ratings agencies are artificially inflating the rating, stalling downgrades, and grossly understating the risk to investors.

My recommendations:

1. If you wait for Moody's or S&P to act, it could be too late. Even if you can't get what you might consider a good price, sell all California paper now!

2. Seriously consider dumping all tax-exempt bonds. I know the income is better than equivalent Treasuries. But if California defaults, it could set off a chain reaction of bond price plunges and defaults throughout the municipal bond market.

3. Don't underestimate the impact California's depression is having — and will continue to have — on the rest of the U.S. economy. At $1.8 trillion, the state's GDP is so large, any further deterioration could wipe out every so-called "green shoot" in the national economy seen to date.

4. Stay safe, with a big portion of your nest egg in cash, tucked away in short-term Treasury bills ... and with a very modest portion in gold, as an insurance policy against a dollar decline.

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I've been arguing for some time that the lib/lab/cons have been following the California economic model. Chase out all productive industry with high regulations, high energy costs(radical green agenda), invite in millions of third world immigrants to live in the tenaments, while stimulating a massive housing and commercial real estate bubble to make up the gap of the productive industry leaving.

But when that bubble bursts.. watch out. There is basically no stopping the collapse of California as the heavy green regulations make it so real industry can't locate there. A few rich celebrities and tech billionaires do not make a good economy.

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I've been arguing for some time that the lib/lab/cons have been following the California economic model. Chase out all productive industry with high regulations, high energy costs(radical green agenda), invite in millions of third world immigrants to live in the tenaments, while stimulating a massive housing and commercial real estate bubble to make up the gap of the productive industry leaving.

But when that bubble bursts.. watch out. There is basically no stopping the collapse of California as the heavy green regulations make it so real industry can't locate there. A few rich celebrities and tech billionaires do not make a good economy.

Like the U.K. then.

Crystallises my thoughts exactly..

Nick

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