A rather flippant title perhaps for a post highlighting the impending bankruptcy of the government of California (the economy over which said state presides being the eighth largest in the world). But then again, it was the governor himself who characterised the economic naysayers as girlie men back when the times were good. Hey ho.
The world’s eighth largest economy started issuing IOU (I-owe-you) vouchers instead of checks Monday as an ongoing budget battle and a 42-billion-dollar deficit left the state without enough cash to meet its commitments.
Governor Arnold Schwarzenegger was meeting with legislators in a bid to resolve the standoff that has prevented the state from passing a budget. State comptroller John Ching has warned that the state could completely run out of cash by the end of this month if a solution is not found.
On Friday tens of thousands of state workers will begin taking two days a month of forced leave without pay.
The Californian government has been spiralling towards collapse for some time now. All the way back in December, the state’s finance director warned that – as above – IOUs might need to be printed. Only back then he said that they’d probably be needed by March. The situation has obviously deteriorated to the point that they’ve started to be used much earlier.
If California defaults, it’s going to roil the muni market. It will significantly worsen the plight of other states in the US – many of which, like California, are teetering on the brink of fiscal collapse.
With that in mind, will the Federal government rescue The Golden State?