The California Crackup

The California Crackup

At one time, California was the beacon of hope, prosperity, opportunity and lifestyle for the whole world. To this day, as I travel the world, California is the place that Arabs, Africans, Europeans, Latins, and Asians all want to visit and really want to move there.

Alas, California is sliding into being a 3rd World country. They even have 3rd world diseases coming back like typhus.

But, if you like urban campaning, it is a paradise.

But here is the point. California ran huge budget surpluses over the last several years due to massive Fed easing after 2008 up until this year. But, in spite of those budget surpluses, they felt that the rich weren't paying their fair share. So they kept raising taxes.

Now, the top .5% of tax payers pay 40% of the taxes in California. I guess that isn't their fair share so the statehouse wants more.

Here's the problem, much of the tax revenue is in the form of capital gains.

The bursting of these bubbles will have a huge impact on tax revenues in the Golden State:

  • Housing
  • Stock Market
  • IPOs
  • Crypto

All gone.

See ya.

Bye bye.

Now, California will start to see huge budget deficits on a scale we have never seen. They will make the drunken sailors over in Illinois look like tightwads. The state itself is projecting a $25 billion hole in the next fiscal year. Good luck.

That assumes that spending doesn't increase. But is California immune to inflation? Of course not. So look for that number to increase by about 10% just because of this.

But spending will increase far more because of the recession. Unemployment benefits and related costs will skyrocket next year. Remember, unemployment benefits are a state issue not really a federal issue. It's hard to estimate the amount of money that will spent there but it will be tens of billions of new spending. The government is expecting something like $40 billion is extra expenses.

At the same time, the exodus of rich people and business owners will accelerate thus reducing the tax base. At the same time, the number of poor immigrants will continue also degrading the tax base.

The bottom line is that we could see a budget deficit approaching $100 billion.

What will they do?

Will Gavin Newsome come begging to the federal governmen with his little tin cup? Will they declare bankruptcy?

So how do we make money from the druck sailor policies of California. I don't see a clear way frankly. Obviously, sell California bonds. But I'll keep scratching my head to figure it out.

Why don't you leave a comment and let me know your ideas!