California on the brink of IOU

Yesterday, once again, the California legislature failed to address its budget disaster. California is officially insolvent, and the State Treasury announced that they will have to issue IOUs to creditors. This is the first time since the Great Depression that the Golden State was  forced to such a desperate measure.

This dire situation will affect all Californians, needless to say, but also the rest of the nation. One out of 8 Americans live in the Golden State, and if California was an independent State in would rank as the 8th largest economy worldwide. The nation, at large, also relies on California’s agriculture for crops such as fruits & vegetables.

If and when you get your California’s IOU in the mail, let’s say for your State tax refund, you will not be able to cash it until October. Needless, to say it will only compound problems for most Californians, especially for the ones struggling to keep a roof above their heads. The unemployment rate in California is even higher than in the rest of the country, and currently looms at around 12%.

Democrats & Republicans in the California legislature deserve full blame for their failure to address a catastrophic situation. Democrats for not understanding that spending cuts are necessary, and Republicans for their unwillingness to raise taxes. The blame also rests on the shoulders of Governor Schwarzenegger for his lack of vision and leadership in the matter.

It should be easy to understand that the only way out of this quagmire is a dual approach: Cut spending & raise taxes. The job losses in California will only increase because of the gridlock. It is something that California voters should keep in mind in the next election. It would not be surprising if a lot of elected officials get a pink slip as opposed to the IOUs we have coming in the mail.