October 24, 2012 by John Myers
“You know the preacher likes the cold
He knows I’m gonna stay
On such a winter’s day”
–“California Dreamin’” by The Mamas & The Papas
California! Home to the gold rush, Hollywood and, once upon a time, the greatest of all American dreams. But as Don DeLillo, the great modern American novelist said: “Californians invented the concept of life-style. This alone warrants their doom.”
I wrote last week about the economic tragedy that has befallen Greece. But the economic crisis is far closer to home than that island nation. For America it may start and end in California.
In the book California Crackup, authors Joe Mathews and Mark Paul explain the economic meltdown for California — whose State coffers may be just as empty as those in Athens, Greece — has legislative districts filled with very partisan people. Every new tax or big spending decision requires a two-thirds majority. Even if a measure finds the needed votes, it can be undone by the voter-initiative process.
Bestselling author Michael Lewis (The Big Short) wrote: “Throw in term limits—no elected official now serves in California government long enough to fully understand it—and you have a recipe for generating maximum contempt for elected officials.”
The California government was designed mainly to maximize the likelihood that voters will despise the people they elect, according to Paul.
“What all the polls show is that people want services and not to pay for them. And that’s exactly what they have now got,” Paul said.
It sounds like what’s going on now in Congress. I find it hard to imagine that either Barack Obama or Mitt Romney will be effective in instituting change.
For Arnold Schwarzenegger, two-term Governor of California, it was a series of economic crises that began with the Internet bubble and ended with the real estate bubble.
In his new autobiography, Total Recall, Schwarzenegger wrote: “Besides being golden and prosperous, California is disaster prone.” He didn’t understand the full extent of this until 2003 when he was elected as a Republican Governor.
“After so many years of ugly, pointless fighting in Sacramento, both sides had lost touch with the art of negotiation. In fact, the legislative districts were drawn to elect the most partisan, uncompromising members of each party; legislators who were bred to fight, like roosters bred for cockfighting.”
It has led to economic failure in what was the land of opportunity.
CNBC reports: “California is on the verge of an economic meltdown. The state, with the second highest foreclosure rate in the nation, is being hammered by the deep recession, rising unemployment and a growing multi-billion dollar budget deficit. … And, while California may be the biggest state in trouble, it isn’t alone.”
How bad is it? I was out at a gathering with all my oldest friends last week. One of them owns the largest motorcycle dealership in California. He has a son and is very worried about his future because of recent events in the State. Yet he said he didn’t know where to go where they would be better off.
That was when I decided to follow up my Greek article and write about California. Only after I did my research did I find that GOP Presidential candidate Mitt Romney had already made the comparison.
Speaking in Iowa in August, Romney compared California’s economy to Greece’s economic crisis.
“Entrepreneurs and business people around the world and here at home think that at some point America is going to become like Greece or like Spain or Italy, or like California.”
Romney also derided California at a fundraiser in Irvine, Calif., earlier this summer when he warned that the ills of that State could spread to the rest of the Nation.
“How have the liberals done in California? Do you want the same policies in Washington that you see coming out of Sacramento? With education, with the deficit, with taxes? Is that the way you want the country to go? I don’t know how anybody in California can keep voting for liberals,” Romney said.
One thing is certain, California is becoming a disaster zone and not because of earthquakes or forest fires. Last month, the Debord Report stated:
The independent State Budget Crisis Tax Force has released its analysis of California’s finances and found that rather than being a whopping $28 billion in debt, as Gov. Jerry Brown alleged with he came to office, the state is actually a nearly unfathomable $335 billion debt. Brown called it a “wall,” as the New York Times noted. But it’s really more like a dozen walls. All stacked on top of each other to make a mega-wall that blocks out the Sun.
This is not an exaggeration. Californian’s total level of debt, on and off the books, is pushing a fifth of the total annual economic output of the state, which is about $2 trillion.
The United States, along with Canada and most Western democracies, has adopted California’s propensity for spending just as it has embraced Hollywood entertainment and La Jolla fashions.
California is the land of illusion. Illusions of prosperity have been adopted worldwide. For his latest bestseller, Boomerang: Travels in the New Third World, Lewis interviewed the mayor of San Jose, Chuck Reed.
Lewis pointed to the fact that San Jose has the second highest per capita income of any city in the United States (after New York) and had one of the highest credit ratings until last March (that was when Moody’s Investors Service cut the general-obligation grade one step to AA1 from AAA).
Reed told Lewis that the city has a problem: It owes so much more money than it can afford to pay to its employees that it could cut its debt in half and still end up broke.
Reed said: “We’re not as bad as Greece, I don’t think.”
Maybe not yet, but for how long? And for how long will the United States be not as bad as Greece? If Washington could not write blank checks because the U.S. dollar is the world’s reserve currency, there would be more serious downgrades to U.S. Treasury debt and that would incur much higher interest rates.
For four years, the Obama Administration has refused to do anything but pass the buck — in this case, to future generations. With a little luck we will at least have the opportunity to see if President Romney has the courage to do more. If not, “California Dreamin’” will become America’s nightmare, and many of us will be stepping into churches to pray.
Yours in good times and bad,
Editor, Myers Energy & Gold Report