Well, unless interest rates increase or there is a further deterioration in California’s finances, that’s just not going to happen, sorry.
Yes, California’s in terrible shape, but they are not quite insolvent. There is still time for California to get their stuff together and reverse things.
California’s like a business that’s in the red every month, owes more than it’s worth but they aren’t bleeding fast enough for interest rates to exceed revenue for quite some time. If California can take in 20 percent of the total income in California, then right now - their interest rates are still only about 5 percent of their revenues. Concerning, yes, but not insolvent.
Cities are going bankrupt in California. See Stockton. Interest rates will go up, history dictates that it will happen. They are in about the same shape as GM was circa 2006. High inflation and interest rate hikes is all it would take to sink California.
Is this an academic argument?
Yes, I agree with you. California could, in theory, reverse course and recover. But they won't, so it's a moot question.
You're not seriously trying to argue that they will change course, get their act together, cut spending, and rein in their union employee pension and health care costs, are you? As long as they can kick the can down the road one more time, they will do so.