D-Day

Later today, Governor Schwarzenegger will unveil yet another budget plan sure to make everyone cringe.  After closing last year’s $26 billion deficit through accounting gimmicks, tax hikes, and spending cuts, the state is facing a $21 billion deficit over the next 18 months. While the governor has declared budget cuts in the education sector off-limits, lawmakers and pundits are predicting painful cuts in health & human services, and possibly the state payroll.

Since 2003, the story has changed very little.  The state borrows and spends too much, and tax revenues continue to precipitously drop. Quick fixes, accounting tricks, tax hikes, and partial spending cuts often provide a short-term solution, but the root cause of California’s fiscal woes remains and worsens with each passing year.  Add in the worst economic downturn since the Great Depression, and the golden state is rapidly approaching the financial abyss.

Unfortunately, during the bubble years, California foolishly borrowed and spent at a dizzying pace, instead of allocating even a modest percentage to savings for a rainy day.  Much like Wall St and the American consumer, California was deceived by the allure of a rising stock market, artificial housing boom, and cheap credit.  But, it proved to be a foundation built upon sand.  Things were too easy, too convenient, and too painless.  Fiscal success required no discipline.

With the benefit of hindsight, California and the rest of the nation have come to learn that solid economies are not built on negative savings rates, a lack of production, artificially low interest rates, a weak Dollar, and insatiable deficit spending.  At some point, payday comes, and the consequences of excess borrowing, spending, and speculating unleash untold pain and suffering.

As a result, drastic changes are needed to save California from a 10 year Recession/Depression.  Worldviews must change, business as usual must immediately be scrapped, and quick fixes must be vigorously opposed.  Is Sacramento up to the challenge?  More importantly, are We the People up to the challenge?

We’re soon going to find out.