Sunday, March 15, 2009

California MayDay MayDay MayDay

Again from, a commenter using the handle Squidly responded to a statement I made earlier.   So I responded thusly:  [my additional comments are in brackets]

@ Squidly (22:50:50) :

“Roger, do you really believe that California’s economy could pick up by then? I sure hope it can and does, but I don’t share your optimism. I think California’s economy is basically toast for a very long time. But, on the other hand, if it does, I am sure you are correct that the AGW crowd will attempt to either take credit for it, or use the improvement to minimalize the impact of their “green” policies. I really feel for Californian’s right now. I believe they are in for a very rough road ahead.”

I do not believe California’s economy will pick up any time soon. Our eternal state budget woes just keep increasing. Yet, many residents seem to have confidence, witness real estate buyers who continue to pay $600,000 for an average, 3-bedroom 2 bath home with 1700 square feet. Without an ocean view.  [a good friend has a home in Thousand Oaks, a small bedroom community of 100,000 residents where the big employer is Amgen.  The prices I gave are from zillow, and in an average neighborhood there.]

A few make it big in the movies, and that road to destruction (boulevard of broken dreams) lures people here by the thousands. [although California no longer has a monopoly on movie-making; animated films and CGA (computer generated art), plus state tax incentives for movie producers to film elsewhere make the balmy California weather less of a factor. Still, the wanna-be's keep showing up, taking jobs as waiters and waitresses, going to the "right" clubs and the "right" parties, hoping to be given a part in a movie.  Like Las Vegas, where a jackpot occurs every few minutes to remind the slot-players that it IS possible, and could happen to them next, Hollywood keeps anointing a very few each year.]

The things I watch are the unemployment numbers (most important), and budget deficit (second most important), then the status of California’s bonds. As long as California can sell bonds to mortgage the future, the state has little incentive to cut spending. If and when the state defaults on its bonds, the place will collapse overnight. [the bond rating agencies have recently cut California's bonds to the lowest rating of all 50 states, including perennial cellar-dweller Louisiana.   Ronald Reagan would be so proud (NOT) ]

It is said that what starts in California soon infects the rest of the country; well, I hope the rest of the U.S.A. has enough sense not to follow the “tax and spend and borrow the rest” attitude that has placed California in this predicament.  [although judging from the federal lunacy of print-and-spend, calling it various things like Bail-Out, Stimulus, with justifications like "XYZ is just too big to be allowed to fail" it appears California is just riding the current fiscal trend.]

Several negatives are about to happen one after another. When Obama’s EPA allows California’s exemption for automobile tail-pipe CO2 emissions, we will not have very many new cars to buy. So the auto dealerships will go broke, and the auto repair shops will boom. The EPA is expected to grant the exemption in early April or May. [cars today cannot be repaired at an affordable price, as they were designed to fall apart after 4 to 5 years operation.  The average consumer is then faced with a horrible choice:  buy a new car or newer used car with very high payments, or repair the current car knowing that it will just keep breaking down.  Further, car makers do not have many cars that meet the strict new California standards.   This is an interesting situation:  what will the State of California do, when the law says new cars must meet XYZ standards, but the car makers do not make such cars?]

The state tax increases on sales, and gasoline, and personal income, will decrease per-capita personal spending. Many more companies will fail, close their doors, and put people out of work.

The state’s Low Carbon Fuel Standard, LCFS, part of the AB 32 lunacy, will increase gasoline and diesel prices.

The RPS (Renewable Portfolio Standard), which requires 20 percent of all electric power sales in California be from renewable sources by 12/31/2010, will also increase power costs to everyone. The amount is uncertain, but will likely be around 10 to 20 percent. [the price increase could be much more in hot weather, when the wind does not blow and there is not much solar generation installed]

The state minimum wage keeps increasing, it is $8 per hour now, yet major cities have an even higher “living wage” requirement. This is great in the short term for the minimum wage-earner, but it keeps many people unemployed.

Finally, if the special election in May succeeds in changing the state’s rules for passing a budget, California is done. Currently, a budget requires 2/3 vote to pass the legislature. The new rule would require a simple majority vote.

Then it will be tax and spend, baby. No drill, baby, drill. Just tax, baby, tax, and spend, baby, spend. The California “experiment in socialism” should end with a bang. But, the curious thing is that tax-and-spend voters far outnumber the others. And the media spin-machine convinces the tax-and-spend voters that other people, the rich people, will pay the taxes, not them.

There is a gubernatorial election in 2010, and our Governator Scharzennegger is already a lame duck in many respects. The only viable candidates are far more to the tax-and-spend side than he is/was.

This is not going to be pretty.

Roger E. Sowell, Esq. 

Contact Mr. Sowell at his legal website

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