Oh Dear - California Craters

With the focus on Wall Street and the US federal government, the fiscal plight of individual states is understandably overlooked. Well, no longer. California, which if it were a country, would have the 7th largest economy in the world, is tapped.

The last time the state had money to pay its bills was July 17th, 2008. Since then it's been borrow, borrow, borrow until it can't borrow any more or, in layman's terms, today. McClatchey Newspapers reports California has gone through a mountain of borrowed money:

As in $21.5 billion worth of borrowed money, according to state Controller John Chiang: $16.5 billion borrowed from some of the state's 1,000-plus special funds, plus $5 billion in "revenue anticipation notes," which are basically money borrowed from private investors.

But, Chiang, whose office writes the state's checks, says California is about out of stopgap tricks to pay its bills and keep all its programs running.

The controller says California is down to Plan D on its checklist of paying bills. Its cash reserves are piddling; the special funds it borrows from are tapped out, and no one in the private sector is going to lend it any cash at a reasonable interest rate.

That leaves what in state government circles are called "payment deferrals" and what in real life is called "stiffing your creditors."

California contributes about 13% of the American economy. The fiscal health of the state (and it's also unmentioned municipalities) impacts on the entire nation. The trouble is that bailing out California (the Governator already asked Bush) is to open a door to the swarm of other states in the same predicament.

When you begin factoring in broke states and municipalities and heap them up on the pile of broke industries, federal government debt and homeowner debt, about the only thing that America has in abundance is debt.

I think the experts may be right. What's facing Obama now isn't a matter of liquidity, it's a full-blown, national insolvency. And, just to tweak your memory, our economy is lashed tightly to theirs.