Sunny California Heading toward the Gloom of Depression

Jan 26, 2009

The state of California is on the verge of bankruptcy–or so say the politicians.

As of February 1, California will issue IOUs instead of tax refunds, student grants and welfare checks.

“IOU” is the new word politicians have come up with, so that they don’t have to say “scrip”–that dreaded word from the 1930s. But that’s what these IOUs are: pieces of paper that loan sharks will charge up to 30 or 40% to cash. By all appearances, we are increasingly entering another depression.

The financial crisis has certainly hit all state treasuries, but California seems to be in bigger trouble than others. In recent years, California officials had used the increased tax revenues from the real estate bubble to hide the size of the huge handouts they made to big corporations. Once that bubble started to burst, the state’s intake of tax money dropped sharply.

Then, like a one-two punch, another blow came. Day-to-day speculation by big banks and corporations finally caused the credit market to crash, and banks started to charge astronomical interest rates for loans. State and local governments, which always rely on loans to make their day-to-day payments, started to run out of cash.

So now, California–this much-praised “fifth largest economy in the world”–doesn’t even have enough cash to pay its own workers! Governor Arnold Schwarzenegger has ordered most state workers to take two days off per month, which amounts roughly to a 10% pay cut.

Right now, California Republicans and Democrats are in the middle of a political game, arguing over what to cut, or what tax increase to impose on the population. But one thing is certain: when the politicians finally announce that “they have reached a compromise,” they intend to drop the ax on the working class, and especially on its poorest layers.

Besides IOUs and pay cuts, the only other proposals so far are deep cuts in education and public services, and increases in sales tax and car registration fees. And not a single word, from either political party, about stopping tax breaks and subsidies to big corporations!

The rich, in their endless drive to get richer more quickly, caused the whole economic crisis–and along with it the budget crises in California and other states. But the politicians still try to protect their rich buddies’ profits. And they have the nerve to demand that working people foot the bill!