What If California Goes Bankrupt?

The old saying used to be, “whither General Motors, whither the nation” because GM was among the largest companies in the country and its tentacles stretched across the nation.

In the last 20 years, its become, “whither California, whither the nation” as California, on its own, stands as the 5th largest economy in the world.

That economy, it’s own mini-nation state, if you will, is now in a world of pain.

Just some of its current problems:

1. The majority of cities on the list of the worst numbers of foreclosure are in Calfornia

2. Unemployment hit 9.3% in December

3. The unemployment system is maxed out, with new claimants unable to get through to the offices to file claims, and worries that the system could run out of money by the end of the year

4. Analysts expect several hundred thousand more foreclosures in the next 2 years

5. The state has a projected budget deficit of $42 billion

6. Home prices have plunged in most of the state- with 50% reductions not uncommon

The stimulus plan could inject much needed cash into the state. From the New York Times:

All told, Congressional estimates show that California’s two-year take from the House version of the bill, which was approved on Wednesday, could top $32 billion, or nearly $1,000 a resident. The State Finance Department puts the number even higher, at $37 billion.

With nearly twice as many motor vehicles as any other state, California would receive at least $4 billion under the House plan for highway, rail and transit projects.

California used to be the state of the American Dream. Even after the dot-com bust earlier in the decade, entreprenuerial people still flocked to the state for the good job base, the sunshine, and the beaches. The state’s natural beauty blinded many to lurking problems which are now coming to the fore.

Real estate doesn’t always go up (whoops.) And the job base, while still among the best in the country, isn’t immune to economic slowdowns.

How does California get out of this mess?

If we can figure that out, maybe we can figure out how to get the rest of the nation out of its current predicament as well.

Question is- how WILL we fix the state? The housing market has not yet reached a bottom. When it does, only then can the state start to recover.

Because, while many in other parts of the country want to deny it, the best and brightest do still flock to California. And whither California, whither the rest of the nation.