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California Begins Issuing Monopoly Money

I have mentioned before the contrast between the restructuring and hard choices being made by the private sector and the response of state and federal governments to the economic downturn. When the term "private sector" is used it's important to understand that the descriptive includes individuals, families, small employers and larger corporations (Fortune 1000 companies, with the obvious exception of the TARP recipients) that employ thousands.

The private sector has, during the last eighteen months, severely reduced spending, increased savings and paid off debt. This is the natural reaction to a view of an uncertain future. American spending habits are as well known as they are immense. Given an optimistic outlook Americans will not only spend substantial amounts of their current income, they will spend equally large proportions of future income (by borrowing). However, in the presence of real uncertainty, they are quick to change their habits and behave in a manner that is characterized by increased saving, reduced spending and rapid debt reduction (all of which are happening now).

Contrast this behavior with the actions of state and federal governments of late. The U S budget has exploded in size, government debt has skyrocketed and government savings....well, you get the idea. It is the epitome of irrationality to believe that the private sector will somehow find itself in better shape while its government conducts its fiscal and monetary affairs in such a radically different manner. Today brings news that the state of California, having run out of cash and unable to reach a legislative solution, is printing IOU's to pay bills. These IOU's are a form of currency (does printing currency sound familiar?) and it will be interesting to see how the marketplace assesses the value of these pieces of paper. As Joe Weisenthal notes:

Please, please, please let there be an after-market in these IOUs. We'd love to see how they're valued and how businesses will conduct exchange using them.

It appears that California is becoming more like the federal government and less like the private sector in attempting to resolve its budget woes. Ironically, that might be a good thing if the ultimate outcome is that voters see that the IOU's are worth nothing without a real plan for fiscal sanity in future budgets. This may be a Prop 13 moment in California as the Golden State demonstrates for the rest of the nation that fiat currencies have no value and that the federal government is no different. (There are more than a few people that have recognized that the federal government is not unable but, rather, adamantly unwilling to reform itself and therefore "the Beast must be starved"). Maybe we are again at a moment when Clifornia is the future.


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Comments (19)

Unfortunately the Terminato... (Below threshold)
epador:

Unfortunately the Terminator is Back to the Future and the Last Airbender is what we're left with.

I think this is disgusting ... (Below threshold)

I think this is disgusting that the democrats and republicans can't compromise on this issue.

What compromise?An... (Below threshold)
hermie:

What compromise?

Anyone can tell you that the CA budget is bloated to the point that you have to cut things. There are plenty of overlapping agencies, programs, and do-nothing jobs that can be cut.

I have some Confederate mon... (Below threshold)
Locomotive Breath:

I have some Confederate money that is worth more than what California is printing.

Can I pay my taxes this yea... (Below threshold)
engineer:

Can I pay my taxes this year with their IOU?
How about my groceries?

This reminded me of a VDH a... (Below threshold)
Hank:

This reminded me of a VDH article I read the other day on Pajama's media.

An excerpt:

"I watched the UC and CSU systems create untold numbers of new administration jobs, staff them with incompetents that had no market value in private enterprise, and lavish $100,000 salaries with generous benefits as they contributed nothing to the teaching of students.

I would see four or five in the parking lot get into their state cars (I remember the local scandal of the mammoth administrator SUVs replete with boat hitches and tow packages) and wonder-how can a state afford a million dollars for that bunch who bring us nothing in return? (California Rule One: Most California executives would gladly work for two-thirds of what they receive, given the absence of commensurate offers from the private sector).

Worse, when the inevitable budget cuts came, these same four would send us memos, advise us to warn the public, and terrify the electorate with stories of social collapse if taxes were not raised to "save the kids." In response, they would lay off the Russian professor, cut the part-time history teachers (all gifted, teaching for us for ten cents on the dollar), and then decry a "greedy voter." (California Rule Two: To save the superfluous, the essential will always be cut.)"

See what happens when Dems ... (Below threshold)
GianiD:

See what happens when Dems have control?

http://zipline.wordpress.com/2008/09/18/10-poverty-stricken-us-cities-have-had-democratic-mayors-councils-since-the-great-society/

They've ruined many cities, are ruining many states, the nation is next.

Those bastards in Sacrament... (Below threshold)
GarandFan:

Those bastards in Sacramento need to be thrown out of office next year. A wholesale blood bath at election time is what we need. They live in an alternate reality. Bass and the rest of those fuckers moan about the children and the poor. We hear nothing of:
1) Getting rid of duplicate commissions paying $100K salaries to termed-out politicians.
2) Giving up their state cars and gas cards.
3) Giving up their per diem pay.
4) Slicing the admin costs of the university system.
The Sacramento "elite" need to find out how it looks on the unemployment line.

Compromise - NO WAY<p... (Below threshold)
Greg:

Compromise - NO WAY

The part you are not hearing about in the press is that the CA state budget has increased 50% in the last 5 years and 100% in the last 10 years. This far exceeds the population growth plus inflation.

Good & Bad news...... (Below threshold)

Good & Bad news...

Good News: using Kalifornia's new Monopoly money I just bought Boardwalk and Park Place!!

Bad News: The building regulations out here won't permit me to put a Hotel (or even a House) on either! *sigh*

"Go to jail Jerkinator... D... (Below threshold)
914:

"Go to jail Jerkinator... Do not pass go.. Go directly to jail.. Do not collect 200 trillion dollars... There is no get out of jail free card!"

The fat cat administrators ... (Below threshold)
Mac Lorry:

The fat cat administrators and bureaucrats always hold kids, the poor, and the elderly as hostages in any attempt to cut budgets. They'll eliminated school programs while giving themselves raises. What California needs is to throw all the long term politicians out of office and elect fiscal conservatives who will cut spending by greatly reducing the number of state management, consulting, and administrative positions. They also need to abrogate union contracts and renegotiate them at fair market value.

Of course, none of that is going to happen. Instead, the federal government (the rest of us) are going to bail them out so that they can continue to increase spending and taxing at unsustainable rates. The only real solution is to give California back to Mexico.

You could be right Mac,the ... (Below threshold)
1903A3:

You could be right Mac,the way the illegal situation is in southern cal. and w/la raza(the race) it wont be long now.

Only problem is that Mexico... (Below threshold)
GarandFan:

Only problem is that Mexico doesn't want California. They get too much money sent back home.

Liberalism in action!... (Below threshold)
Michael:

Liberalism in action!

they might as well take it ... (Below threshold)
1903A3:

they might as well take it garand,do WE really want,or need it. Seems like any kind of progressive BS the libs want or make up,thats where it starts.well that and NY.give,em that one too!

Well if anyone needs to see... (Below threshold)
GarandFan:

Well if anyone needs to see where the US economy is going, have 'em look at Kalifornia. Can't even borrrow money, and state bonds have been rated "JUNK".

Compromise? You mean like e... (Below threshold)
Jay Guevara:

Compromise? You mean like excising only half of a tumor?

I have only one question. ... (Below threshold)
James H:

I have only one question. Who the heck thought it would be a good idea to require a two-thirds majority TO PASS THE BUDGET!!!???




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