California finds itself at a pivotal moment as its credit rating hangs in the balance, according to Standard & Poor’s Ratings Service. With the new fiscal year commencing just one week away, the absence of an approved budget raises concerns. “If a budget is not adopted in time for the state to issue its revenue anticipation notes (RANs) before its cash runs low,” S&P cautioned on Tuesday, “the state’s fundamental operating liquidity can become inadequate.”
For those unfamiliar with California’s budgetary politics, this may seem alarming. However, this kind of scenario is not uncommon in the Golden State. During the budget crisis in 2009, for instance, the state resorted to issuing IOUs to government employees for several weeks just to ensure cash payments to bondholders. Yes, it really happened.
Interestingly, the issue seemed to barely register with most people, aside from those holding the IOUs. Life continued as it always does; the sun rose over the San Jacinto Mountains and set over San Pedro Bay. Monthly mortgage bills kept arriving, sore backs persisted after long days of work, jokes were shared with friends, and evening walks were enjoyed with loved ones. Our nightly ritual of tucking our young son into bed with a gentle kiss remained unchanged.
Reflecting on that tumultuous time, we can’t think of anything we would have done differently, even amid Sacramento’s financial turmoil. Yet here we are, only two years later, facing a similar situation once again.
This time around, it feels even more entertaining…
“We Need More Welfare and Fewer Jobs”
The new Governor, Jerry Brown, is returning to the role he once held, having first taken office in 1975—long before many of us were even born. From what we gathered about “Governor Moonbeam,” as he was nicknamed, he was often seen as misguided in his approach.
Given his track record, our expectations were low when he was elected this time. Yet, surprisingly, we are beginning to appreciate his stance.
“Democrats who control California’s legislature last Wednesday approved a budget to close a deficit of about $10 billion on their own,” reported Reuters. “The next day, Governor Jerry Brown, a Democrat, vetoed it, criticizing its ‘legally questionable maneuvers, costly borrowing, and unrealistic savings.’”
This is remarkable. We can’t recall a governor, or a president for that matter, rejecting their party’s schemes so openly. If we didn’t already know this was the same man who less than a year ago declared, “We need more welfare and fewer jobs,” we might be tempted to support him for president.
As we all understand, the Federal Reserve is in dire need of assistance. The current leaders seem chronically unable to bolster the economy effectively. Obama, Biden, Geithner, and Bernanke appear trapped in a cycle of ineffective policies.
Economic Panacea Unveiled
For instance, on Wednesday, Federal Reserve Chairman Ben Bernanke exhibited a grim demeanor. He relayed the Federal Open Market Committee’s statement, noting that economic recovery was progressing “somewhat more slowly than the committee had expected.” Moments later, the DOW plummeted by 80 points.
We’re unsure if it was mere coincidence or an undeniable correlation. What Bernanke almost acknowledged is what has been clear since the recovery began: it’s largely an illusion. Printing a trillion dollars out of thin air does not create wealth; it merely dilutes the value of pre-existing wealth.
Consider this analogy: Quantitative easing is like a watered-down beer, a soggy meatloaf, or a Nobel Peace Prize awarded for efforts lacking substance. Simply put, it’s a facade.
Alas, despite all their efforts, the economy continues to struggle like a three-legged animal. All the grand ideas, stimulation, and quantitative easing have proven to be major failures. The anticipated economic cure turned out to be little more than snake oil peddled by a traveling charlatan.
As a result, the Federal Reserve’s legacy consists of monumental public debt, soaring entitlement programs, and an unemployment line that stretches across vast distances. This is the outcome of misguided attempts by those who brought forth policies that even a child would recognize as fanciful, all in a bid to save us from ourselves and the economy’s pitfalls.
As the presidential election cycle heats up, we may see them attempt any number of strategies to mitigate the fallout.
Enjoy your weekend! If your week was anything like ours, you’ve certainly earned it.
Sincerely,
MN Gordon
for Economic Prism