California Struggling To Go On

California is struggling to close its $24 billion budget gap. Republicans and democrats continue to argue over what programs to cut and how much from each. The state is wrestling with depressed tax revenues and an overtaxed electorate that rejected ballot initiatives for tax increases last month. California has been particularly hard hit in the current recession given its highly inflated housing bubble prior to the bust. Unemployment hit 11.5% last Friday working to further strain the system.

State controller, John Chiang, warns that California will become insolvent if a budget agreement is not passed by July. California, already hampered by the lowest credit rating of any state, has been placed on the credit watch list by Moody's and Standard and Poor's. The difficultly in garnering credit at low rates led the state to seek help from the Obama administration. Yet, the request for the US government to guarantee $5.5 billion in notes was rejected. Obama believes California should solve its own problems. It is somewhat confusing to see how the US economy can recover without its largest state and economy rebounding. It is unclear what distinctions are drawn between the hundreds of banks and the large automakers and the state of California.