Is California’s Economic Woes a Glimpse of the Future?

Bob O'Brien
Head Instructor
bobrien@mywealth.com

The parallels are striking: no fiscal discipline, borrowing like there is no tomorrow and afraid to accept what is at the core of our economic problems. The one thing that the Federal Government can do that California cannot do is print money. If California could print money there would be run away hyper-inflation.  

 

 

This is the largest state economy in the US and yet just a sample of the fiscal mess that exists in many states all over the country.   It also leads you to believe that the reason that there are rumors of a Stimulus 2.0, are because in reality there has never been a Stimulus 1.0. 

 

Much of the Stimulus 1.0 has gone to help states cover their existing payroll and not toward the actual projects as intended.   This should be a clear indication as to why there will be no Stimulus 2.0.  

 

Nobody likes to kick people that are well to do when they are down, but the fact of the matter is that the states just cannot manage money! Many of the states are like children who think there is an eternal supply of financial resources. 

 

Anyone familiar with the currency market knows that this is just not the case, and we are going to pay a huge price for our lack of fiscal discipline one way or another.   

 

Giving the states more money to create jobs is like asking for more debt, state jobs are the best and highest paying jobs out there. They are the best because it is very difficult to lose them and their overall compensation package is much greater than the average private sector employee.

 

These state pensions are unbelievable, and working 25 years for the state government is better than hitting the lottery.  When you start putting these pension systems under the microscope, it becomes clear and clearer as to why the states should not be given anything, and need to completely restructure themselves immediately.    

 

A State employee that retires at age 55 (which is common), gets an annuity for life of usually 60% of their final average pay with an inflation rider. The present value/cost to the tax payers for this pension is over $2,000,000.00.  So for every state employee, the costs of their pension alone are approximately $2,000,000.00.   These are some of the major problems that are not being addressed in the U.S. economy!  

 

In addition, the states have made horrible investments for these pensions, creating an even bigger hole.   Most people save and invest on their own for retirement in the form of a 401k and get no bailout when they lose money, but the states will.