California Now Officially Worse than a Developing Country

Just in from the West Coast:

California’s debt is seen by investors as riskier than Kazakhstan’s, according to Bloomberg News. Five-year credit default swaps tied to California’s debt, which are a key measure of the market’s belief in the likelihood of default, are actually trading at 100 basis points above those of Kazakhstan. In other words, the market believes a developing country of just 15.7 million people is actually less likely to default on its debt than California, which makes up the eighth-largest economy in the world.

And last week, Jamie Dimon, the CEO of JPMorgan, the nation’s second largest bank, warned that California’s $20 billion budget gap could pose a bigger risk than the Greek debt crisis.

In other news, here in the Midwest, where rational people live:

During the fat years of the mid-2000s, while most governors went on spending sprees, Indiana Gov. Mitch Daniels was trimming Indiana’s payroll, slowing the state government’s growth, and turning a $800 million deficit into a consistent surplus. Now that times are hard, his fiscal rigor is paying off: the state’s projected budget shortfall for 2011, as a percentage of the budget, is the third-lowest in the country.

One Comment

  1. […] Following up on California’s status as an economic disaster-hole, it begs the question of “why do state budgets matter?” Frankly, the long and short of it is if your state is broke, then by law they’re required to not be broke. The result is higher taxes and cuts. Because most governments are incapable of thinking rationally, they usually start cutting education, police, healthcare, etc. You know, the things people use and actually hired the government to deal with. […]

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