California Going Bankrupt
We have come to California to look into the future. America may lead the world. But the Golden State leads America. The state is a hothouse of invention, always innovating, always evolving, at such a fast pace the rest of the world gets dizzy trying to keep up.
Detroit may have given America the cheap automobile, but California knew what to do with it. It built suburbs all up and down the coast and then connected them with a network of freeways. Gasoline was cheap. Houses were cheap. And the roads were open.
California is a land of dreamers. Bubbles, like tropical plants, grow big and fast here, creating large shades of deception and narcissicm. Then, the hot sun beats down and the dried out dreams fall to the ground as firewood waiting to be re-ignited.
In the late ’90s, the Silicon Valley was the source of great dreams - people there believed that computer technology would transform the world. It has. But not exactly as they had hoped. Their dotcom bubble went up in smoke before the end of the decade.
Then, came a group of new bubbles - also largely based in California. The feds panicked in the recession of ‘01-’02. Their artificially low interest rates - combined with the globalized economy - caused the final deviation that produced the Extreme Bubble Culture from the period of 2002- 2007.
Housing prices rose, giving consumers the collateral they needed to dream big. Soon they were borrowing money so they could buy German cars, fill their tanks with Saudi oil, and drive to malls to buy Chinese gadgets.
Everyone speculated on housing prices - homeowners, lenders, investors, builders, and Arnold Schwarzenegger’s state government itself. But now that housing prices have come down, the whole Bubble Culture may be threatened with extinction.
Los Angeles is a primary example of what this modus operandi has done to the wealthiest state in the union. Downtown L.A is just a collection of office buildings. In the morning, people drive in, park in garages, and go directly to their offices. In the late afternoon, the legs turn and move in the opposite direction. By nighttime, the place is as dull and empty as a state senator’s head.
The brain is missing too. When ordinary citizens dreamed of riches, so did the state government. Now, the bodybuilder faces bankruptcy for the 2nd time since he’s been governor. When he was sworn in, the state was threatened with default on $13 billion worth of loans from the previous administration. This time the stakes are higher.
California led the nation on the way up; it’s leading on the way down too. When the value of the collateral broke down in 2007, Bubble Culture turned brown. Homeowners went broke. Their lenders went broke. And pretty soon, the whole world was beginning to go broke. In the last two years, house prices in California have fallen 40%…50% in some areas.
Naturally, when the bubble blew up…so did California’s state budget. Suddenly, tax revenues collapsed while expenses rose. This was completely visible to a person of normal intelligence; it nevertheless seemed to come as a complete surprise to the legislature. For months, the government has warned that it was running out of money.
In this too, California leads the nation. Not only are its people going broke - so is its government. When this year began, the government faced a $42 billion deficit and was forced to pay its employees in IOUs.
Unlike the federal government, California can’t print money. But between issuing IOUs to employees and issuing dollar bills to foreign lenders there is not a lot of difference. Whether they have the emblem of the Great State of California or that of the United States of America, both pieces of paper will come to be worth what people will give you for them, and not a penny more.
Bubble Culture now seems cheap and dirty, out-of-fashion and broke. But Californians are still dreaming. Perhaps they need a rude awakening; hopefully that awakening occurs before it’s too late…
