Has The State Of California Become The Epicenter Of The Economic Collapse Of America?

Once upon a time, California was the state that everyone wanted to move to.  The endless sunshine, the gorgeous weather, the beaches, the lure of Hollywood and a booming economy made it extremely attractive to millions of Americans who wanted to fulfill their “California dreams”.  But those days are long gone.  Now, the state of California has become an economic nightmare.  In fact, many would argue that California has now become the epicenter of the economic collapse of the United States.  Everything that once made California great is now being swamped by a tidal wave of unemployment, foreclosures, crime, budget cuts, traffic, taxes and natural disasters.  There is a reason why every year now many more people leave the state of California than move into it.  The state of California is suffering a slow economic death, and if something is not done it could end up being one of the biggest financial disasters in history.

The economic crisis of the past several years has hit California so incredibly hard that it is hard to describe.  According to the U.S. Labor Department, the unemployment picture in the state continues to deteriorate, with an overall unemployment rate of 12.5 percent in January.

12.5 percent may not sound that bad, but the truth is that the situation in many of the urban areas is much worse.  There are now 8 counties in the state of California that have unemployment rates of over 20 percent.

In this economic environment, not even teachers are safe.  Just last week, the state of California handed pink slips to nearly 22,000 teachers across the state.

It is hard to even convey how bad things are in California right now.  California has always been a “boom or bust” state, but what is happening now is really unprecedented.

In fact, the number of people now unemployed in California is equivalent to the populations of Nevada, New Hampshire and Vermont combined.

Businesses are shutting down at an alarming rate.  For example, in the area around Sacramento, California there is one closed business for every six that are still open.

Just think about that.

One out of every seven businesses has already shut down.

And unfortunately things are going to get even worse.

But that is the last thing that people in California want to hear about now.

All of these economic problems are playing havoc with the state budget as well.  At this point the state of California is essentially dead broke.  Yet they have to keep borrowing more and more money because revenues have fallen off so sharply.  Basically what California is doing is they are piling up the biggest mountain of debt that any U.S. state has ever accumulated, and there is no hope that they will be able to do anything about it any time soon.

The following is how Ralph E. Stone of the Fog City Journal recently described the California government’s colossal financial problems….

How bad is the problem? Consider that California has a $20.7 billion deficit in the general fund budget over the next 16 months. California owes $8.8 billion in short-term loans that have to be paid off by June, and over $120 billion in outstanding bonds and interest that will be paid over decades. The state’s pension fund, CalPers, has $16.3 billion more in liabilities than assets, plus California also faces a $51.8 billion expense for the health and dental benefits of state retirees and future retirees.

So what can the state of California do?  Well, they can either raise taxes or they can cut spending.  Considering the fact that taxes are already at an incredibly oppressive level in the state, that is not a great option.  Not that they won’t try to suck more money out of the taxpayers anyway.

What California should be trying to do is to cut spending, but the very deep cuts that have been made already have not made that much progress.

Bob Herbert of the New York Times recently described California’s massive budget problems this way….

California has cut billions of dollars from its education system, including its renowned network of public colleges and universities. Many thousands of teachers have been let go. Budget officials travel the state with a glazed look in their eyes, having tried everything they can think of to balance the state budget. And still the deficits persist.

But it is not just California’s government that is experiencing a financial crisis of unprecedented magnitude.

California’s overstretched health care system is also on the verge of collapse.  Dozens of California hospitals and emergency rooms have shut down over the last decade.

Why?

The reality is that many hospitals and emergency rooms simply could not afford to stay open as they were endlessly swamped with immigrants and poor and homeless who were not able to pay for the services they were getting.

As a result of these hospital and emergency room closings, the remainder of the health care system in the state of California is now beyond overloaded.  This had led to brutally long waits, diverted ambulances and even unnecessary patient deaths.

And the number of Californians who are unable to pay for their emergency care is only increasing.

According to one new study, approximately 1 in 4 Californians under the age 65 had absolutely no health insurance last year.

But perhaps now that Barack Obama’s health care scheme has passed, maybe the cost of caring for everyone in California will be taken care of by the American taxpayers.

Thanks Obama.

The high unemployment rate and the cuts to the budget in California have also created an environment where crime and gang activity can flourish.  Not that crime and gangs were not gigantic problems before.  But now thousands upon thousands of young men who can’t or won’t find jobs have nothing better to do than sell drugs and terrorize entire neighborhoods.

In fact, there are many areas of California where you just do not go out of your home at night.

Then there are the devastating droughts, the thousands of wildfires, the endless earthquakes, and the crippling mudslides which California now experiences almost every single year.

No wonder so many people are flocking to leave the state.

But what happens in California eventually spreads to the rest of the United States.

Keep in mind that 13 percent of the U.S. gross domestic product comes from the state of California.

Counted by itself, California would be the 5th largest economy in the entire world.

So to think that these problems can be isolated to California is complete fantasy.

In fact, there are some areas in the United States, such as Detroit, that are just as bad as anything that is going on in California.

So the reality is that this is a national economic cancer that is spreading rapidly.

The economic nightmare that people in California and Michigan are experiencing will be coming to your area sooner or later.

Are you ready for that?

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How Can Anyone Claim That The Housing Crisis Is Over When The Delinquency Rate On U.S. Mortgages Continues To Explode At An Exponential Rate?

Housing prices have stabilized and are actually slightly increasing in some areas.  The tax breaks passed by Congress have encouraged more first-time home buyers to get into the market.  So is the U.S. housing crisis over?  Will the real estate market be back to normal in no time?  Well, if you listen to many of the talking heads on the news channels, you might be tempted to think that the worst of the housing crisis is behind us and that we are headed towards recovery.  But that is not what is happening.  The truth is that we are just now getting ready for round 2 of the real estate nightmare.

Where is the evidence to back that assertion up?  Well, just consider the chart below.  The delinquency rate on U.S. residential mortgages continues to explode at an exponential  rate….

Please note that the rate of mortgage delinquencies is now much, much higher than it was when the housing market was crashing so hard in 2007 and 2008.  More people than ever are falling seriously behind on their mortgages, and that means that more homes than ever are in danger of being foreclosed.

Now it is true that there are some signs that the rate of serious mortgage delinquencies is starting to stabilize, but the reality is that we will experience only a momentary pause.

Why?

A massive second wave of adjustable rate mortgages is scheduled to reset beginning this year, and if it goes anything like the “first wave” did, the results could be absolutely catastrophic for the U.S. economy.  Just check out the chart below….

This coming second wave could result in another huge mountain of foreclosures being forced on to the market.

So is the housing crisis over?

No.

Not even close.

Unless something really dramatic happens, the U.S. housing market is going to experience pain so intense that it is hard to even imagine.  Millions more Americans could lose their homes and scores of banks could end up being shut down.

Let’s hope that things end up being not quite as bad as it looks like they could be.

But you know what they say: “Hope for the best but prepare for the worst”.

Thrive Life