"Standard & Poors Corp. cut California's credit rating Monday to the lowest level among all 50 states because of a budget impase between Gov. Arnold Schwarzenegger and state lawmakers. ... The downgrade reflects the rating agency's view of 'the lack of political progress around the budget negotiations that we believe is serving to exacerbate the state's current and projected cash position,' said Gabriel Petek, an S&P analyst, adding that 'the state's cash position is rapidly eroding.' Because of the stalemate, California's controller on Monday began delaying more than $3 billion in tax refunds, welfare checks and other payments to pregvent a cash shortfall. ... S&P downgraded California's $46 billion of general obligation bonds to single-A from single-A-plus, the rating agency's fifth-lowest of 10 investment grades", Stu Woo at the WSJ, 4 February 2009.
S&P is on the ball. It downgrades California's debt after California is unable to pay it's current bills. Who needs these guys? Further, these S&P fools think the problem is a "stalemate" as opposed to California's spending.
3 comments:
I had an idea for a real cap on California spending.
Don't allow spending any money which hasn't already been collected the prevous year.
This removes any problems with projecting the future income of the state and easily allows a balanced budget. California could, of course, save up an emergency fund in case it needed to spend more in one year than
it had collected the previous year but additional spending over amounts already collected would be impossible. No borrowing...
This has the side effect of removing the interest costs on "cash management" debt too.
Ignoring the transition problem, there is the problem of how you hold this around 100B you are collecting this year for next year's spending. As a fiduciary for the people of California this money must be secure. If any is lost it's gone and will directly cut next year's spending.
A simple plan is probably a good idea too -- this isn't long term money, so something like short term US treasury debt sounds financially secure. Except for inflation.
Why should California pay the inflation tax?
OK. Put it in gold.
That's three times the current holdings of GLD which has the #7 spot in the World Gold Council's World Gold Holdings. California would be #6 ahead of Switzerland (GLD would be pushed down to #8).
Something to think about...
What a great idea... tax receipts held in gold for the following years expenses...
But what about all those poor muni bankers? Do we really want to deprive them of their livlihood?
Since California often leads the country I wonder on how long before the USA has its credit rating reduced?
DJF
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