There is a lack of will, and it comes out of a lack of vision of how to proceed. The lack of vision comes from a spirit pre-occupied by a prior and exclusive view of a situation in the context of a greater vision of what life is about.
What this leads me to say is that the state of California, the Baby Boomers and the Generation X-ers, all share a set of follies, a kind of possession, that will not permit them to get to a solution.
If this were AA, then we would have to say that Californians, the elite, at least, had to hit "rock bottom" in order to be forced to surrender and come to terms with what was rather than what they thought should be.
What you are watching is an exorcism brought about by a confrontation with reality, and the California elites are about to lose, lose big, lose face and hope, until the last shreads of illusion and what should be gets turned into what has to be.
The IOUs aren't in the mail but they are soon likely after California political leaders failed to reach a last-minute deal on fixing a $24.3 billion budget deficit Tuesday night.
Gov. Arnold Schwarzenegger on Wednesday declared a fiscal emergency to force lawmakers into a special session.
"Though the legislature failed to solve our budget problem yesterday, rest assured that solving the entire deficit remains my first and only priority, and I will not rest until we get it done. I will not be a part of pushing this crisis down the road — the road stops here," Schwarzenegger said in a statement.
The governor's declaration under Proposition 58 requires lawmakers to adopt a plan to close the deficit within 45 days.
Schwarzenegger also signed an executive order forcing 220,000 state workers to take a third furlough day without pay beginning this month.
As a result of Tuesday's blown budget deadline, the state whose economy is bigger than all but seven countries in the world is getting ready to issue IOUs beginning Thursday for only the second time since the Great Depression.
State Controller John Chiang said the State Pooled Money Investment Board will meet Thursday to set the interest rate for about $3 billion in short-term promissory notes that will mature in October.
Most of the money will go to the elderly, disabled and welfare recipients, about $1 billion. About $565 million will go businesses and another $159 million will go to students.
By missing the midnight deadline, state leaders lost an important opportunity to shave $3 billion in education spending in the fiscal year that just ended. Both the Democratic plan for the budget gap and Schwarzenegger's had counted on that.
The governor proposed $16 billion in cuts, borrowing $2 billion from local governments and taking $6 billion from other government accounts. He also backs accelerated personal and corporate income tax collections, as well as a 5 percent cut in state employee pay.
The Democratic party, which holds a majority in both the Assembly and the Senate, has proposed $11 billion in spending cuts, raising fees on vehicle licenses and hiking taxes on tobacco products and companies that drill for oil.
State Treasurer Bill Lockyer promised on Monday that California won't default on its bonds, refuting a possibility raised by analyst Martin Weiss of Weiss Research in a June 22 report.
The state's bond rating is already the lowest in the nation, but rating agencies have threatened to drop it nearer to junk bond status because of the budget impasse which has dragged on since April.
State leaders thought they had resolved the current year budget earlier than ever when they adopted one in February, but the recession cut tax revenue by about 20 percent since then.
California bonds maturing in 2037 traded as low as 83.35 cents on the dollar Tuesday, a yield of about 6.27 percent, down from a recent high of 97.25 cents on May 12.
____________________ "The force and degree of a man's inner benevolence evokes in others a proportionate degree of ill-will" - Gurdjieff
"In a time of universal deceit, telling the truth is a revolutionary act." — George Orwell
This is a long term problem for California that can not be fixed using short term solutions. I'm reading from several official sources that the economy will bottom and undulate from artificial stimulus's, these stimulus policies are only theoretic in the current situation and may not work for actually causing a recovery, and that real recovery is not expected to begin until 2012.
Beyond the recovery beginning in 2012 the World Bank is advising it's asian clients that: "the US will no longer be an importer as before when it revamps its economic structure"
Of course I am wondering exactly what the new economic structure is planned to look like. The Powers That Be (TPTB) seem to know but they ain't talking. In any case I interpret all this to mean the USA is not expected to become an engine of growth for the world economy.
California must and will be forced to completely change its political and financial means and ends.
____________________ Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
A group of the biggest U.S. banks said they would stop accepting California's IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.
[Dorothy Cottrill of the state controller's office inspects IOUs last week.] Associated Press
Dorothy Cottrill of the state controller's office inspects IOUs last week.
The development is the latest twist in California's struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs -- or "individual registered warrants" -- to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July's end.
But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate. Some banks might also work with creditors to come up with an interim solution, such as extending them a line of credit, said Beth Mills, a California Bankers Association spokeswoman.
Meanwhile, on Monday morning, a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce a result. Amid the budget deadlock, Fitch Ratings on Monday dropped California's bond rating to BBB, down from A minus, the latest in a series of ratings downgrades for the state.
The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.
Ms. Mills of the CBA said some banks were concerned that there aren't processes in place to accept IOUs, and also worried about fraud issues. She noted that not all banks have set a July 10 deadline, and that dozens of credit unions in the state will keep accepting IOUs.
Wells Fargo's head of community banking, Lisa Stevens, said: "We're very disappointed, as are many Californians, that California has taken the unfortunate step of issuing IOUs in lieu of payments to some businesses and individuals."
State officials said they were disappointed by the banks' decision. Garin Casaleggio, a spokesman for Mr. Chiang, said: "We don't want anybody to suffer who can't redeem them when they need cash."
Write to Ryan Knutson at ryan.knutson@wsj.com
____________________ "The force and degree of a man's inner benevolence evokes in others a proportionate degree of ill-will" - Gurdjieff
"In a time of universal deceit, telling the truth is a revolutionary act." — George Orwell
There is no shortage of people with money who would gladly buy the IOUs, not necessarily at a discount to face value, although some scalpers would do business, and in theory the IOUs could trade like script money - that actually increases in value (3.75%) as the maturity date approaches. Check cashing services will take them for a fee. The State though doesn't seem to want the IOUs to freely trade since they are requiring a notarized document if the IOU changes hands.
