California government lays-off 20,000, as FIRST step in crisis

The "Governator", Arnold Schwarzenegger, is set to lay-off 20,000 state employees today, as part of the budget-cutting that is necessary with the state facing a deficit of $42 BILLION.

As I was saying throughout the second half of last year, U.S. states crushed by a collapse in revenues must inevitably engage in SEVERE job-cutting to avoid bankruptcy, or simply rely upon monthly hand-outs from the federal government just to meet their payrolls.

Sadly, state governments were duped by the propaganda coming from Washington and Wall Street - which promised a "second-half recovery" in 2008. Since they did virtually NOTHING in the way of cost-cutting last year, more than 40 U.S. states are ALL facing budget crises.

The size of these projected deficits is increasing exponentially, doubling every few months. No doubt there are many who see this as yet another problem which can be "solved" through federal hand-outs. The problem here is that the Obama regime is already on course for about a $3 TRILLION deficit for 2009 - and already has NO CHANCE of selling enough U.S. Treasuries to finance that staggering amount of debt.

Finally, what absolutely no one is paying ANY attention to are the costs to service this debt (i.e. pay the interest). Strip away the padding, and U.S. GDP is only about $11 trillion/year (the same size as the U.S. "national debt", BEFORE Obama's 2009 spending binge).

Even if the U.S. economy was solvent (which it clearly is NOT), servicing a debt this large (while the REST of the U.S. is trying to make payments on an additional $40 TRILLION. When one out of every four dollars (or one out of every three) are used just to make interest payments, it's akin to a long-distance runner trying to run a marathon while wearing a suit of armor - collapse is inevitable.

Included in California's budget are $14.4 billion in tax increases. This will negate most of the impact of the Obama "stimulus package" in the largest U.S. state, even before it officially becomes law.

This is the U.S. dilemma. Either the U.S. states pile-on tax increases to try to reduce the number of lay-offs, or they lay-off MANY more workers - who then are no longer paying taxes, and then the deficit GROWS, the lay-offs then INCREASE, adding more to the deficit, leading to more lay-offs, and so on.

This is an economic death-spiral little different from the tragic plane accident in the U.S., where the plane went into a totally vertical nose-dive - sparing no one.

A CNN piece concludes with this:

"Running short of cash, California last month started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies so the state could continue funding schools and making debt payments."

Here is a CNN link: