California will be Bankrupt on July 29th

California will be bankrupt in two months! Obama and Geithner have already said they will not bailout California so we are in trouble. Here are the details from California’s Controller: 

Starting July 29, California won’t have enough cash to pay its bills, state Controller John Chiang told the governor and legislative leaders today.

The state will be in the red by $317.1 million that day, Chiang wrote them in a three-page letter.

“Two days later, on July 31, our cash deficit increases to a negative $1.02 billion,” he added.

He pleaded with them to pass a balanced budget by June 15 to make it easier for the state to borrow money to cover the cash crunch.

Click here to read the letter.

The controller’s office has also prepared a graphic outlining California‘s cash outlook from July 2009 through June 2010, available here.

The State of Manufacturing

Robert Reich has a nice piece about the state of manufacturing. The main cause of manufacturing jobs losses worldwide:

Want to blame something? Blame new knowledge. Knowledge created the electronic gadgets and software that can now do almost any routine task.

His solution:

The biggest challenge we face over the long term — beyond the current depression — isn’t how to bring manufacturing back. It’s how to improve the earnings of America’s expanding army of low-wage workers who are doing personal service jobs in hotels, hospitals, big-box retail stores, restaurant chains, and all the other businesses that need bodies but not high skills.

Recession to end in 2009

Hopefully, we economists are better at predicting the end of the recession than the beginning of it:

The panel of 45 economists said it expects economic growth will rebound in the second half of 2009. However, the group still expects to see a decline in second-quarter economic activity.

The panel forecast a total of 4.5 million jobs lost in 2009, pushing the unemployment rate to 9.8%. Modest gains in 2010 will reduce the rate to 9.3% by year’s end, the report predicted.

Taxes and Choices for California

California’s taxation levels have increased to 10.5 percent, raising California to the sixth-highest in the nation in 2008.

Because of a dire budget situation, California must cut education. California is exploring shortening the school year, this would amount to furloughs for teachers since they would take days off without pay. The other option is increasing class sizes, this means laying teachers off.

The fact that California has the sixth-highest tax level in the nation and the 48th lowest spending level in education is an embarrassment. What do you think the lesser of the two evils is, shorter school year with furloughs or larger classrooms with layoffs?

Changes for Teaching Economics

Greg Mankiw’s article in tomorrow’s NY Times points out some changes we need to make when teaching economics.

California’s Unemployment Rate Drops

This was quite a shock to me, a positive one though! It’s probably a one-time dip since the State of California will be laying off many as they try to fix the $25 billion budget:

California’s unemployment rate dipped slightly to 11 percent last month, although the state lost 63,700 jobs, the federal government reported today.

The Bureau of Labor Statistics said California unemployment fell two-tenths of a point even though the state’s job loss was the highest in the country.

At 11 percent, California had the fifth-highest unemployment rate in the country. Michigan’s was first, at 12.9 percent.

Unemployment rates for Sacramento and other metropolitan areas were due to be released later today.

Weekly Employment Numbers

Calculated Risk does a great job summarizing the weekly employment numbers:

The DOL reports on weekly unemployment insurance claims:

In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week’s revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week’s revised average of 632,000.
…
The advance number for seasonally adjusted insured unemployment during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week’s revised level of 6,587,000.

Click on graph for larger image in new window.

The first graph shows weekly claims and continued claims since 1971.

The four-week moving average is at 628,500, off 30,250 from the peak 6 weeks ago.

Continued claims are now at 6.66 million – an all time record.

Typically the four-week average peaks near the end of a recession. There is a reasonable chance that claims have peaked for this cycle, but it is still too early to be sure, and if so, continued claims should peak soon.

The level of initial claims (631 thousand) is still very high, indicating significant weakness in the job market.

Will California Fail?

Megan McArdle has an article about California and if it should be allowed to fail. Here are some excerpts (I suggest you read the entire article):

 There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice.  But actually, we do have a choice:  we could let them go bankrupt.  And we probably should.

On the other hand, I don’t really see another way out of it.  If Uncle Sugar bails out California, California will not fix its problems.  Perhaps you want Obama to make it fix the problems, using the same competence, power, and can-do spirit with which he has repaired all the holes in the banking and auto manufacturing sectors.  But Obma is not in a good position to do this.  California Democrats are a huge part of his governing coalition.  All Obama can do is shovel money into the bottomless pit of California’s political system.

California will go bankrupt, muni and state debt will spike, the federal government will backstop humanitarian programs and very possibly all state and local debt, and eventually, California will figure out whether it wants higher taxes or lower spending.  But we will not actually make the world a better place by enabling the lunatics in Sacramento to pretend they can have both.

One Good Thing About Our Recession

From CNN Money, “Banks Look to Cut the Fat”. One of the long-term benefits of a recession is that every company tends to cut some fat. The end result of this is a more competitive company which wastes less money. Although the short-run layoffs are painful, the long-run results in a more competitive company. In today’s global world, competitiveness is vital for successful economies because it creates jobs.

Did California Cause the Great Recession?

Dan Walters from the Sacramento Bee doesn’t think so:

But nine of the 10 top issuers of subprime and no-documentation mortgages were headquartered in California, and the state has been ground zero for the collapse of those mortgages as adjustable interest rates “reset” upward, having recorded more than a half-million foreclosures and other symbols of distress.

But aren’t jobs leaving California?

The Republicans released spreadsheets, obtained from Nevada’s economic development department, listing businesses that had relocated from California over the last five years. It was, to put it mildly, unimpressive, just a couple of thousand jobs.