[FirstPrinciple]

Bonds are tax increases in the sense that you probably will need one to pay it off along with a hefty interest. Let's face the truth of the market for bonds. Very few people on this thread are talking reality.

CA already has one of the lowest bond rating. If they float more issues in the market, the only way they will be able to pay off is by offering a high interest rate. The most insane and saddest thing of this situation is that unlike using a bond issue to build something that may generate revenues, this will only go into the general budget to fund govt agencies. In other words, not a dime will go into economic expansion but to support the present bureaucracy. This is exactly why third world countries never get out of debt.

There will be only two ways to get out of it. The state can default, at which point forget about any future bond issues. Or, CA can start begging the federal govt for debt relief painting the spectre of hungry children running naked on the streets, no cops to protect the innocent, etc etc. At that point, it will be a tax increase for the whole country. The solution is that things are so bad, this is the perfect opportunity to take a sledge hammer and rip the state budget. It will be classic. Arnold - the real-life Terminator.

[mike_9958]

I understand what you are saying but I'm not sure I buy it. The Fed goverment runs a deficit all the time - in essense borrowing money from itself and selling bonds. The deficit goes up and down - with folks talking about balancing the budget and paying down the deficit.

This all sounds like what Arnold is doing on a state level. The exception is that Ca. must sell bonds - which is similiar in nature to what the fed does. Ca will pay the bonds off as the economy turns around. They do have revenue streams - which is unlike some third world countries.