Fed Assistance Is Essential To Solving The Calif Problem Which Threatens Nation's Economic Recovery

California's worsening financial problems remain a serious threat to bring down the Nation's Fragile Economic Recovery. As pointed out in the full linked article below, if the Federal Govt does not find a way to assist California in its time of need, the consequences could shake the entire Financial System.

And Nobody is going to be able to say they never saw this coming....


http://www.today.ucla.edu/portal/ut/arguing-over-fed-aid-won-t-solve-151391.aspx

"So, is there any case for federal aid to California?

There is a case for federal assistance, and it is summed up in two words that no one in an official position in the state can utter: “municipal bonds.” California’s fiscal position is, in fact, grave. We could spend much time debating who is to blame for the state’s budget debacle. But at this point the salient fact is that the budget is wildly out of balance, even with the cuts, tax increases and gimmicks that have been enacted during the past two years. State officials, particularly the treasurer and controller, have been anxious to assure financial markets that a state default on its debt service is very unlikely. Their insistence on that point became particularly strong when a forecasting service in late 2009 predicted an eventual California default.

The treasurer and controller have repeatedly noted that debt service is a relatively small portion of state’s general fund revenue, even in the Great Recession. And they are right; the state itself is very unlikely to default. But what about the myriad local counties, cities, school and community college districts that also have debt to service and that are dependent on a flow of funds from Sacramento? To conserve cash for its own needs (including debt service) during a crunch, the state now routinely delays payments it is obligated to make to locals (and others). It finds ways of indirectly raiding their treasuries. One small municipality in California is already in default. Others could follow.

In normal times, the muni-bond market would shrug off a local default as just that, a local problem. For example, even the large Orange County default in the mid-1990s caused only a brief shiver in the market. But we are not now in normal times. The Federal Reserve and the Treasury have found themselves bailing out major financial institutions. Those steps ultimately led to a bottoming out of an economy that was heading for freefall. But the recovery, if that is what we now have, is still quite fragile. Another financial market disturbance could put us back on the downward path.

Do the folks in Washington want to risk a disturbance in yet another financial market? A double-dip recession? No one knows what the consequences would be of a rash of defaults coming out of California localities. And no one should want to find out. So now is the time for the governor, the California congressional delegation and the authorities in Washington to take a deep breath. The time for inflammatory language is over. Aid to California – probably as part of a larger state-and-local assistance plan – is needed."

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:shrug:

:mad: :sarcasm:

We shall soon find out whether California is as deserving of the Fed's largesse as AIG and Goldman Sachs were. Get your popcorn. Take your seats. We are about to find out just how those generous guys at the Fed and in the U.S. Treasury handle this one.

Considering that Calif is such a large Economy(larger than many countries!) and it is an engine for economic activity across the country, the Federal Government will be adversely impacted by defaults and municipal bankruptcies arising in California.

There may be a good reason for the principle that the Federal Government does not bail out individual states, but without Federal Help the recovery of the Calif Economy may take many more years to recover--which in turn will harm the Federal Government's plan for economic recovery.

Huge spending by DoD such as San Diego naval base, aerospace firms in LA, NASA in the Bay Area?

Federal spending on dams, such as Hoover, canals, irrigation, etc.