Cal Watchdog points out that Greece, which recently made quite a bit of news lately by becoming so heavily indebted that it ran the risk of default (which many believe might have begun a domino effect that would drag the world economy to even more perilous straits than it is now), is no longer the world's #1 risk for default. The good news being that with the vast sums of money coughed up by the EU and other economically concerned partners, "the liquidity crisis surrounding the rollover of Greek debt" has now subsided a little. And the odds of Greece defaulting have fallen from even money to one in three.
According to the CMA Sovereign Risk Monitor, here is the new Top 10 "Highest Default Probabilities."
6) Dubai/Emirate of
7) Latvia/Republic of
8) California/State of
10) Sicily/Region of
The big news for us is that California has now entered this chart of world class risk at #8. Which really is quite an accomplishment.
Joseph Vranich, who you might be familiar with as one of the ubiquitous talking heads called out to dress up the economic segments of news broadcasts on places like CNN and CSPAN, puts this into perspective on his interesting blog, The Business Relocation Coach.
California bonds are now viewed as one of the riskiest places in the world for investors to put their money. At least that is according to the latest "CMA Sovereign Risk Monitor," which ranks the world's most volatile sovereign debt issuers.
Vranich then backs this apocalyptic news up with a quote from Spencer Jakab of the Financial Times, who shares the following intriguing comparison of California to Kazahkhstan:
Kazakhstan, with the world's 11th largest oil reserves, an economy that grew more than 8 per cent annually from 2002 through 2007 and unemployment of just 6.7 per cent looks positively vibrant next to the Golden State's joblessness of 12.4 per cent. And Kazakhstan's modest budget deficit compared to a state forced to pay bills with IOUs last year and possibly again this summer ... If it were to raise taxes or cut public services, wealthy Kazakhs could hardly defect to Kyrgyzstan the way Californians, already facing some of the highest levies and worst schools in the nation, might decamp to, say, Utah.
A little perspective is in order after this week's revelations regarding Sacramento raking off $2.05 billion from the CRA accounts of its captive cities. These are not the kinds of things a state that is doing things properly would do. Rather these are the extraordinary actions of a government that might very well be in a terminal financial death spiral. Lobbyist run and operated on a pay-to-play basis, Sacramento has become a financial black hole that is sucking everything of value into it. And when the state has been sucked dry and there is nothing left to take, all that we'll be left with is a truly world-class default.
Bill Watkins, writing on the always intriguing New Geography.com site, posted an article last December entitled What Happens When California Defaults? Here is his take:
The California Legislative Analyst's Office recently reported that the State faces a $21 billion shortfall in the current as well as the next fiscal year ... Our governor and legislature used every trick in their books when they created the most recent budget. They even resorted to mandatory interest free loans from the taxpayers. Now, they have no idea where to go. The Democrats have declared they will not allow budget cuts. The Republicans will not allow tax increases. They have probably run out of smoke and mirrors, although their ability to engage in budget gimmickry is enough to make an Enron accountant blush. No one is considering raising revenues by increasing economic activity.
In my opinion, California is now more likely to default than it is to not default. It is not a certainty, but it is a possibility that is increasingly likely.
If the CMA's "Top 10" chart is any indication, our man Bill here could turn out to be something of a prophet.
And to think that Sacramento believes it has the right to tell us how to do our City planning ...