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A Recipe for Disaster

by Zach Wilkes / /

California is a foodie's dream, home to delicately prepared, aesthetically pleasing, healthy masterpieces that will take your breath away.  However, its state government has not followed suit.  Instead, California is racking up an enormous bill that it can't possibly pay for, and at the same time the state is trying to avoid budget cuts despite an ever growing deficit.  That's a recipe too "Greece-y" for even a Southerner's palate. 

With Greek debt spiraling out of control, and almost every financial reporter focused on the prospect of the beleaguered Mediterranean country folding like a stack of cards, don't you think that someone in Sacramento might be paying attention?  After all, California is currently facing a $20 billion budget deficit for fiscal year 2010; just adding to over $70 billion in outstanding debt, and it shows no sign of curtailing its reckless spending spree.  And we already know where this can lead… to the heart of the Mediterranean, $300 billion in debt and junk bond status.

With its bond rating dropping as low as BBB last summer and currently resting at A-, California already has to pay out more interest on its loans than before.  This only compounds the problem.  It is now borrowing more money at a higher interest rate; as any home buyer can tell you, that's a financial nightmare.  Unless something is done, this vicious cycle will continue, further destabilizing the most populous state in our country.  If you thought Fannie and Freddie were bad, just wait till you see what happens if Cali goes bottom up.  It's time for someone to wake up and smell the coffee.  If not, all the tofu in the world won't prevent one, big, "Greece-y" case of fiscal cardiac arrest.