The Californian version of New Orleans’ laissez les bon temps roulez appears as yet unbreached. But it will be. The state will shortly discover that it has no credit with the private sector, that its IOUs are no longer accepted, and that the population it’s losing day by day is the part whose tax payments have been keeping it from sinking entirely. At some point, Sacramento will appeal to Congress for a bailout of some sort: perhaps a loan guarantee, or a credit agreement like the one New York City got from the Treasury in the Seventies to avert a wholesale default.
And it won’t get one. It would have to be approved by the House of Representatives, after all. We didn’t send those folks to Washington to give away any more of our money.
So California will default. Its bonds will be devalued, and private industry won’t honor its purchase orders. Its state and municipal employees will have to be let go in great numbers, giving it a truly horrendous unemployment problem.
This is called “hitting bottom”
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