California IOU Tax Refunds

Auto affordability has a lot to do with spending, tax recovery and solvency of California. I don't see a lot of autos being purchased and the poll tells us why. It has been consistent since the initial publishing of this website that over 60 percent of the people who take the poll cannot afford to repurchase the car that they now own. This is a very high number and is a disturbing trend. 

How can California expect to gain economic footing without the auto industry? I would suggest that they will have to painfully cut spending, and I would rather see them cut prisons than much needed social services to the disadvantaged. Politically it is difficult, but it is the right thing to do to maintain necessary social programs. My experience was that those who extend those programs are hard working and dedicated. They don't make the big bucks either. 

We will see how California resolves a continuing problem of sales and property declines. This  saga is not over yet, regardless of the rosy talk from CNBC and others.

Update: California budget crisis is not out of the woods. I see the idea is offered to let a bunch of people out of jail. Well, certainly we have a huge percentage of folks in jail in California. Let the non violent ones serve at home and hire a few more parole officers to watch them.

Update: IOU's will still be issued until the budget passes and the money is in the accounts for real checks to be issued. Higher education cuts amount to a staggering 3 billion dollars while prisons only take a 1.2 billion cut. That is absolutely ridiculous. When we need people who are educated, the Stupidnator has decided to reduce the enrollment by 40 THOUSAND students in the CSU system alone. This is bad, really bad. It is time to cut the pay of prison guards and of administrators all over this state. Then these student cuts would not have to be so severe!

One innovative plan would be to slant drill in California off Santa Barbara, with the goal of getting rid of the ugly rigs that are near the shore. This area is too beautiful for a bunch of oil rigs spoiling the view. Now they just have to chop down the hideous towers at Moro Bay owned by PG&E and we will be getting somewhere.

Update:The Governator and the Legislature came to an agreement to screw the local municipalities in putting an end to the IOU crisis. Details will follow but the educational system and safety nets were spared. On the other hand, departments are looking at major budget cuts. That no doubt means jobs will be sacrificed as no taxes were raised.

Big news, Stephen Levy, economist, has said that there is no solution to the California Credit crisis other than a federal bailout. This gruesome news is the result of his interpretation that the state cannot add more taxes, having already raised taxes. Yet cuts cannot be made that are reasonable and balance the budget. Only unreasonable cuts can balance the budget. Levy's conclusion: the federal government MUST bail out California.   

Here are a couple of updates: UC may furlough tens of thousands of workers, cutting actual wages by 4 to 10 percent to save 184 million bucks.

The SEC has proposed allowing state ious to be traded as securities, ie, bonds. This is problematic because, although it will help with liquidity since big broke banks can't accept them, it bypasses the constitutionally mandated vote of the people to approve bonds, by setting these up as bonds. We will have to see how this plays out. 

Maybe they could just package them as securities and people could buy insurance to hedge defaults by betting that Cali will default. We could have CDO's squared and a trillion dollars worth of insurance written on a few billion dollars of actual IOUs. Oh wait, that is how we got into the problems we are in.   

Major update: Iou's to be issued on Thursday but they will not be able to be redeemed until OCTOBER! Apparently these IOU's will be issued to creditors and to the US government itself! IOU's could be issued to the poor and the infirm. The Wednesday morning (7/1/09) budget meeting failed. IOU's are being prepared. Furlows through next June will be on the first three Fridays of the month for state employees.

California will lose some matching funds, making the Republicans look like fools in this matter. Certainly the ponzi housing scheme which was established at Basel 2 in 1998 was established under the Bush administration. It is the federal government's responsibility to make this right with California, although that will have adverse effects on the economy as well. I personally think that all these folks who were involved in the securitization of crap loans and liar loans should be prosecuted.

Until these people are prosecuted, and that includes Henry Paulson, there will be no justice for the poor in California or any other state:

Be Patriotic. Stop International Bankers from Raping America!

Update: California is set to issue iou's next week if the lawmakers cannot solve the budget deficit. This will take place sometime next week after 6/24/09. Would you take a California IOU knowing that the federal government may not bail them out? I wouldn't. Best of luck to my home state.

The state of California must vote to abolish the Federal Reserve which permitted the international bankers to establish the ponzi housing scheme. Make no mistake, the scheme was preplanned at the 1998 Basel 2 meeting in Europe. The Federal Reserve is a private bank, and while to board allows congress to pry, the Fed banks, like the Fed Bank of New York are OFF LIMITS to Congress. Since congress has abdicated their responsibility the states must abolish the federal reserve. California has been adversely affected by the ponzi scam in housing. Wake up people!

Update: If the federal government does not bail out California, then Real Estate will crash even further than thought possible in the state. We all know state workers make pretty good money and own a lot of property. We all know that they are steady payers of debt that banks can count on. If that changes then this will be a major disaster.

I personally think that the state should just withhold revenue from the Federal Government,since she rarely gets back even close to what she contributes. That would make some news wouldn't it?

Urgent Update: California revenue plummetted 17.7 percent in May year over year.The meltdown of state government has been extended to a full 50 days from June 10.

Urgent Update: California will run out of money in 14 days stated the Governator this morning (June 2). Digital textbooks and the elimination of many boards and agencies could be implimented.

Update: Due to the failure of the recent propositions, California faces massive layoffs or a generous bailout from the Federal government. I would suggest it is more the former. There are too many prisons, too many prisoners, too many rules and too many state employees. In a recession where there are layoffs everywhere, state government will likely have no choice than to layoff. But if the stimulus would have gone to the people, not Goldman Sachs, etc, the consumer would be in better shape. But don't hold your breath. Things are getting worse for the consumer.

Bookmark this website for must read information about the attack on the middle class being waged by the financial system and about dangers to the financial system and to the FDIC! This site may help some of you: Stop International Bankers From Raping America! The other links are down the page.

Update: California faces a 6 billion dollar shortfall if proposition 1A fails. The problem is that too much has been born by the taxpayer already in the budget fix. Because of this the propositions are in big trouble, as taxpayers in California are against further hits to their household budgets

Update: Bad news for some California employees: Bill Lockyer has said that the budget compromise cut some money out of the budget, meaning the 20,000 jobs are not guaranteed. It depends on federal help, the ability of the state to raise money, and the continuing deterioration of the state budget and economy.

This is the problem regarding what the government wants to do. First, housing is too expensive relative to historical levels, especially in bubble states (3x average yearly household income). Cars are too expensive as my poll below shows, and the wages and benefits and debt of the car companies are too high to enable the companies to build cheaper cars.

So then, any attempt to put a floor under overpriced housing is doomed, and the housing market will freeze up like the car market has done if house price declines slow.

^{Update: California has passed the budget compromise, holding the Republicans hostage until the thing passed. While I am not a fan of Republicans who got us into this mess at the fed level, California's budget is too bloated for the downturns I am projecting. The budget will be contingent on some bonds being passed. More taxation in a major downturn is questionable, yet that is the plan, as the budget remains too bloated and is already outdated based on new figures}

^{Update: It has been reported that the Republicans booted their leader, Dave Cogdill, from his leadership position. CNN reports that this will really make negotiations more difficult. The second 10,000 notices may be sent out today after lawmakers failed to approve the budget compromise after working on it into the wee hours of the morning.}

^{Update: 12,800 of the 20 thousand layoffs will be in the Department of Corrections. Since they are already grossly understaffed, there will probably have to be massive prisoner release orders.}

^{Update: The Los Angeles Times reports that the budget deficit has swollen from 14.5 billion to 16 billion. If you read on down you will see that my prediction is that house prices must drop much further, so this budget will continue to deteriorate, perhaps for years.}

^{Update: The promised layoff notices will start going out Tuesday to 20,000 workers in corrections, health and human services and other agencies that receive money from the general fund. The legislation is one vote short.}

^{Update: The legislature will meet at 11 am on Monday to try to pass the compromise. Personally I think that the raising of registration fees coupled with the other taxes are unfortunate. It will be more difficult for the poorer people to pay the 12 cent gas tax hike and yet the Democrats are supposed to be for the people? Hmm.}

Bookmark this website for important information about the attack on the middle class being waged by the financial system and about unamerican recourse loans for primary mortgages. The links are below.

UpDate: The budget compromise failed to pass on Saturday and the state legislature is trying again today but Republicans are holding out. In the proposal are tax hikes of 1 cent on the dollar in the state sales tax and a 12 cent tax per gallon of gas. Car registration fees would almost double. Republicans so far have resisted that extra taxation as well as the added borrowing.

Update: Santa Ana state senator Lou Correa may be the deciding vote on whether the budget passes today. License fees for cars will almost double if the proposal passes. The largest state union negotiated one day per month furloughs instead of 2 per month. .

Update: Vote on the California budget will take place on Valentine's Day. Can you feel the love? Republicans may not go along. I will keep you posted. It turns out that many counties, asked to foot the bill for state mandated programs, will either withhold tax receipts to the states, like LA County and Colusa County, or will sue the state, like Orange and Sacramento Counties. This revolt against the state (because the counties don't have the money either) is growing daily!

Update: California may have to lay off up to 20 thousand workers today if the budget impasse is not solved. These would be low seniority employees with salaries paid out of the general fund. As of this writing there has been no announcement.

Also, the state stimulus aid may largely be offset by state budget cuts. And finally, option arm and alt a loans are set to begin large resets throughout 2009 through 2011 in neighborhoods with more expensive homes than we saw hit through the subprime meltdown which has largely passed.

Update: The governator may balance the budget with sharp increases in sales, gas and license tax increases.

Update: The senate is debating the new stimulus package today. It appears that help for states has been drastically cut. I am not sure that lawmakers realize that California is the tail that can wag the dog (USA). Further declines in California will mean that the banks will continue to decline probably at an accelerated rate.

Update: See New Must See Videos about our fiscal crisis in California.

Update: Judge says state of the state of California is a mess and allows the governator to furlough state employees two Fridays per month. Of course the 1.4 billion dollars saved through June will only be a drop in the bucket. This doesn't really fix anything! IOU's may not be issued now because they may not be honored by banks. There will be a delay of at least 30 days in sending payments. Don't hold your breath if you are expecting a government payment!

Update: Projects are being shut down as state only has IOU's for construction products. See link below!

The idea of tax refund iou's to taxpayers in California are reflective of falling revenues in the state. As consumers are no longer able to borrow against their houses they cannot buy cars, boats, recreational vehicles, etc. that drive the economy. The revenue is consumer based and house prices in California peaked at over 500 thousand dollars for the median house price. That, as of the writing of this article, is now down to roughly 350 thousand per house.

Based upon historical averages for house prices versus income, prices in California should average 200 thousand dollars or even less. Historically house prices are no more than 3-4 times yearly income. 4 times is a stretch but with Los Angeles household income at 54 thousand dollars, house prices should not be more than the 200 thousand mentioned here. It is possible that they could go as low as 175 thousand, which would mean that Los Angeles prices could be twice as expensive as they need to be!

The ponzi scheme that was hatched by the government of the United States has been a dreadfully bad idea. I write more about it in another article with the link below.

This is a warning to everyone. Buying a house at artificially low interest rates is a TRAP. The reason that this is a trap is that either deflation will continue and the house could go down in value, or inflation could rage causing the need to raise interest rates. Plus there are problems out of our nation's control like whether the world will buy our debt. Interest rates could rise because of this. So, buying a house at artificially low rates cannot lock in the value.

If a poll were taken I would think that most people in California could not afford the car they are driving if they had to buy it today. We know that they cannot afford the house they are living in.

The government of California is bleeding red ink, and is required to balance the budget and cannot print money like the fed. So, this IOU problem in state governments could get worse before it gets better unless the government of Barak Obama comes to the rescue of the states.

From the Controller, John Chiang on January 17:

"State Controller John Chiang announced today that his office would suspend tax refunds, welfare checks, student grants and other payments owed to Californians starting Feb. 1, as a result of the state's cash crisis.

Chiang said he had no choice but to stop making some $3.7 billion in payments in the absence of action by the governor and lawmakers to close the state's nearly $42-billion budget deficit. More than half of those payments are tax refunds.

The controller said the suspended payments could be rolled into IOUs if California still lacked sufficient cash to pay its bills come March or April.

"I take this action with great reluctance," Chiang said at a news conference in his office. But he said that without action to close the deficit, "there is no way to make it through February unscathed."

The payments to be frozen include nearly $2 billion in tax refunds; $300 million in cash grants for needy families and the aged, blind and disabled; and $13 million in grants for college students."

My take on this of course is that the government coffers will show even greater problems and deficits as the housing values continue to decline. The problem with not paying welfare is that this is even less money circulating to already strapped landlords, and to grocery stores, etc, besides being a hardship for the most vulnerable Californians. This situation is getting ugly and fast.