I recently received the following email message from a friend:

Harris: Why is it, do you think, that the terrible financial situation in the County (Santa Barbara), the State, does not appear to be any matters of discussion? In both cases, they are a disaster waiting to happen. Is that the reason? The State Controller stated that the state could not borrow any more money last week. Where is the public comment, the concern? Nationally, the situation in CA is a frequent subject of discussion. Not here though. Is the national scene so over-powering? What is going on?

Here’s my response: I believe the situation is due to a combination of a number of things (in no particular order):

1) A media that is staffed by journalists who have no economic training or understanding and who do not do their job.

2) Abysmally poor economics education is taught in our schools, by a teaching establishment that has come to view capitalism and free enterprise as bad or evil.

3) Political Correctness, which has taken over our schools and the media.

4) A large percentage of the population is fat, dumb and happy and is generally uninformed and indifferent to anything that does not directly affect them.

5) A general feeling of helplessness, even among those who do pay attention and care, that they can’t do anything about the situation, with the result that people tune out bad news.

6) A corrupt political class at almost every level of government – who make a career of holding public office. They have structured the system to make it easy to get re-elected, which also makes them indifferent to the opinions of most of their constituents.

7) The pension plans at every level of government, local, state and federal, are a major contributor to the problem of runaway budgets.

In California, the process of expanding government has reached the point that most of what happens in the state legislature is not well reported or reported at all, except by a few columnists.

Much like Congress, the sheer volume of bills that expand government regulation is almost impossible to track at the state and local levels – and generally intrudes on public consciousness only after it’s too late to stop them.

Finally, any legislation that may be controversial is often created largely in secret in an effort to slip it past the public before people can react and resist, or it is passed with an implementation date in the future, which generally goes unnoticed until it is too late to stop it.

A good example is the California Global Warming Solutions Act, passed in 2006, which established a cap-and-trade program that will become effective January 1, 2012. It is the first statewide program to cap all GHG emissions from major industries that also includes penalties for non-compliance. It requires emissions to be reduced to 1990 levels by 2020, a decrease of approximately 25%.

The consequences of this legislation are likely to be so severe that it will impact every trucking business in the state and will probably force many of them to go out of business, in addition to dramatically raising the cost of doing business in California, which will add additional impetus for many businesses to leave the state.

The larger question is what happens when government continues to spend money it doesn’t have?

Speaking to this issue, Dr. Marc Faber noted, “Eventually, I suppose a lot of governments will be bust, including the U.S…Nothing has been resolved, it’s just being postponed…The ultimate crisis will not just bankrupt the banking system and financial as happened in 2008, it will bankrupt governments.” A good example of Dr. Faber’s observation is the economic crisis that’s currently playing out in Greece.

Local and state governments don’t have the luxury of printing money, so their only recourse is to either borrow or cut spending. Californians have exacerbated the problem by approving billions of dollars of bond issues in recent years, without regard to the debt service that’s required to pay them off, generally over 30 or 40 years, roughly doubling the cost in the process. Far too many people simply do not understand that the debt service on bond issues reduces spendable cash flow in future years.

In California, the consequence of failing to meet the state’s obligations timely or at all will eventually cause politicians to panic and leave bondholders in the lurch, without the income investors thought they were buying. They will be locked in without a viable market for resale, except at big discounts, which will drive the cost of additional borrowing sky high.

Finally, we are also seeing this scenario play out at the local level as well. Santa Barbara County has an unfunded pension liability of almost a billion dollars and was last reported to have a $39 million budget deficit. At some point, they are bound to run out of cash and will be unable to pay their bills.

It’s depressing, I know, but you asked.

© 2010 Harris R. Sherline, All Rights Reserved

Read more of Harris Sherline’s commentaries on his blog at www.opinionfest.com

I recently received the following email from a friend:

Harris: Why is it, do you think, that the terrible financial situation in the County (Santa Barbara), the State, does not appear to be any matters of discussion? In both cases, they are a disaster waiting to happen. Is that the reason? The State Controller stated that the state could not borrow any more money last week. Where is the public comment, the concern? Nationally, the situation in CA is a frequent subject of discussion. Not here though. Is the national scene so over-powering? What is going on?

I believe the situation is due to a combination of a number of things (in no particular order):

1) A media that is staffed by journalists who have no economic training or understanding and does not do its job.

2) An abysmally poor education in our schools, especially about economics, coupled with an education establishment that has come to view capitalism and free enterprise as bad or evil.

3) Political Correctness, which has taken over our schools and the media.

4) A large percentage of the population is fat, dumb and happy and is generally uninformed and indifferent to anything that does not directly affect them.

5) A general feeling of helplessness, even among those who do pay attention and care, that they can’t do anything about the situation, with the result that people tune out bad news.

6) A corrupt political class at almost every level of government – who make a career of holding public office. They have structured the system to make it easy to get re-elected, which also makes them indifferent to the opinions of most of their constituents.

7) The pension system at all levels of government, county, state and federal, is a major cause of the problem of runaway budgets that are rapidly putting the nation into bankruptcy.

In California, the process of expanding government has reached the point that most of what happens in the state legislature is not well reported or reported at all, except for a few columnists like Dan Walters and Daniel Weintraub. Much like Congress, the sheer volume of bills that expand government regulation is impossible to track and finally intrude on public consciousness only after it’s too late to stop them.

Finally, any legislation that may be the least bit controversial is often hidden from view in an effort to slip it past the public before they can react and resist, or it is passed with an implementation date in the future, which generally goes unnoticed by the public until it is too late.

A good example is the California Global Warming Solutions Act, passed in 2006, which established a cap-and-trade program that will become effective January 1, 2012. It is the first U.S. statewide program to cap all GHG emissions from major industries and includes penalties for non-compliance, requiring emissions to be reduced to 1990 levels by 2020, a decrease of approximately 25%.

The consequences of this legislation are likely to be so severe that it will impact every business in the state and will probably force many of them to go out of business, in addition to dramatically raising the cost of doing business.

The larger question is what happens when government continues to spend money it doesn’t have?

Speaking to this issue, Dr. Marc Faber recently noted, “Eventually, I suppose a lot of governments will be bust, including the U.S…Nothing has been resolved, it’s just being postponed…The ultimate crisis will not just bankrupt the banking system and financial as happened in 2008, it will bankrupt governments.”

States (in the U.S.) don’t have the luxury of printing money, so their only recourse is to borrow. Californians have carried this to an extreme, approving billions of dollars of bond issues in recent years, without regard to the debt service that’s required to pay them off, generally over 30 or 40 years, roughly doubling the cost in the process.

Governments can and do go bankrupt, repudiating their obligations in the process. They fail to pay debt service on the bonds they may have issued or the value of their currency may depreciate to the point that it becomes worthless.

In California, the consequence of failing to meet its obligations timely or at all will cause panic, leaving bondholders in the lurch, without the income they thought they were buying and locked in without a viable market for resale, except at huge discounts.

It’s depressing, I know, but you asked.

© 2009 Harris R. Sherline, All Rights Reserved

Read more of Harris Sherline’s commentaries on his blog at www.opinionfest.com