The state budget issue isn’t an isolated matter of government procedure. The effects are wide ranging across America. Whatever happens, it is becoming clear that California is going to lead the way. California doesn’t know where 58% of their budget will come from.
How states deal with budget shortfalls has yet to be seen. Citizens already straining from job losses and stagnant pay amid inflation will not accept more taxes. State worker unions are also digging in their heels. I have no faith that states are willing to make tough cuts in their spending.
Federal bailout?
It seems that state government default is inevitable. The federal government has tools that state governments do not; they can print their own money. If states fail then the national government can bail out or not.
If the federal government bails out California then they will have to follow that precedent as more state governments collapse.
If the federal government doesn’t bail out California and the state is unable to pay creditors then it will make state government bonds have the appeal of anthrax.
Further reading: Are We There Yet? Preparing for the Coming Tax-Revolt
