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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.

Except the US Treasury bonds are probably the highest rated bonds in the world. I could be wrong, but I don't think we need to pay a hefty premuim for people to hold US bonds. CA probably has the lowest rating in the whole business. It has to pay a much higher premium, because unlike third world countries CA will not have IMF holding its debt for next to nothing interest rate. Give CA back to Mexico and let it raise as much debt as it wants.