California is less credit worthy than Kazakhstan

Things continue to deteriorate in the People’s Republic of California. What was once described as a laboratory of liberalism is now ready to face its maker.

Back in June 2002, Harold Meyerson from liberal American Prospect declared that "California is the only one of the nation's 10 largest states that is uniformly under Democratic control." In the Golden State, Meyerson said, "the next New Deal is in tryouts."

During last few decades, California was known as a state where all new liberal policies originate. From uber-high taxes to uber high spending and uber tough regulations, California is known as an outlier in the nation, and probably the most European part of the United States. Even when California elects a nominally Republican governor, it continues its left-wing drift.

For example, according to George Will “If, since 1990, state spending increases had been held to the inflation rate plus population growth, the state would have a $15 billion surplus instead of a $42 billion budget deficit, which is larger than the budgets of all but 10 states. Since 1990, the number of state employees has increased by more than a third. In Schwarzenegger's less than six years as governor, per capita government spending, adjusted for inflation, has increased nearly 20 percent”

In spite of all budgetary issues, California continued to push for costly environmental regulation. The liberal media could not hide its delight with the process of Europezation of California. Time magazine lauded Schwarzenegger as a hero for ignoring all the financial problems in California and instead allying himself with liberals and spending 3 billion dollars on stem cell research as well as signing a multi-billion dollar “Democratic bill capping greenhouse-gas emissions.”

But now the fun is over and California is forced to pay for the decades of experimenting with liberalism. According to LA Times, “The state of California's real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported. “The state of California's real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported.”

Of course, this situation did not materialize overnight. According to same newspaper, “In California's case, past pension underfunding means reduced funding of current programs. This explains why pension costs rose 2,000% from 1999 to 2009, while state funding for higher education declined over the same period.”

The market could not fail to notice the downfall of the mighty California, and the state bonds started approaching the status of the Enron stocks after the 2000 crash. The state Treasurer Bill Lockyer was not amused, and he filed a formal complaint that “Data reported in the news media and other sources show that the prices, or spreads, on California CDS wrongly brand our bonds as a greater risk than those issued by such nations as Kazakhstan...”

A liberal newspaper Financial Times could not miss the opportunity to stick a knife into Billy and had this to say: "The real Kazakhstan, although not problem-free, looks fairly solid compared to California and many other states - a fact that should spook investors in America's $2,800bn municipal bond market."

Of course, California is not alone in its financial struggles. According to Forbes, the “bluest states (are) spilling the most red ink.” The article declared that “The five states in the worst financial condition – Illinois, New York, Connecticut, California and New Jersey – are all among the bluest of blue states.”

According to Tax Foundation, the top ten for state-local tax burdens in 2008: 10.) Rhode Island 9.) Wisconsin 8.) Vermont 7.) Ohio 6.) California 5.) Hawaii 4.) Maryland 3.) Connecticut 2.) New York 1.) New Jersey.

Notice that excluding Illinois, the states in worst financial condition also have the highest taxes in the nation. It’s quite apparent that if anything, the current problem with liberal states is not low taxation – but rather exorbitant spending and regulations.

Of course, the problem with over-taxation and over-spending is not limited to states. Some local epicenters of liberalism experience same consequences. For example, this liberal county in the otherwise conservative state has spent itself into oblivion by “going green”.

Today we can confidently say that Obama is following the example of the governors of failed liberal states. At this point it remains an academic exercise to predict when America will face high inflation and even higher unemployment with possible bankruptcy of the federal government. I don’t think this can be stopped – but I believe it will be a very useful teaching moment for the entire nation.