According to the LA Times, Governor Schwarzenegger has proposed eliminating all State Welfare Programs in California. If true, CA may have reached the inevitable breaking point. Citizens don’t want higher taxes, politicians don’t want to cut programs.

I don’t envy the Governator here. While he did preside over a 40% increase in CA’s budget, all the blame does not rest with him. California’s economy has been a ticking time bomb for a while. Here’s an excerpt from The LA Times:

Gov. Arnold Schwarzenegger is proposing to completely eliminate the state’s welfare program for families, medical insurance for low-income children and Cal Grants cash assistance to college and university students. link

Dramatic Posturing to Spur Action, or the Beginning of Social Unrest?

I don’t wanna get all Mad Max here. But it’s no stretch to say that social unrest is a real possibility at this point.  When social services start to fail, people will get angry. And California’s economic situation couldn’t be much worse. As of February 2008, they had total debt of over $60 billion (pdf). This year they face a $21b budget shortfall. Taxpayers are rejecting tax increases, drastic spending cuts, and further debt-raises. Something has to give.

Tuesday should be an interesting day in the markets. Exposure to precious metals seems prudent, as continual bailouts and quantitative-easing seem inevitable. I am happy with my limited long equity exposure, even though I missed a good portion of the recent dead-cat bounce. I will hold my sizable short positions (sizable by my meager standards, anyway), and remain mostly on the sidelines.

I’ve been expecting a nasty bombshell on one a Friday afternoon for a while now, and this may be it. 3-day weekends are largely regarded as the perfect time to drop some horrific news on the markets. This delays the market’s reaction by 3 days, so is obviously very effective by political standards.

More good info on this story:

  • California begins hunt for deeper cuts – NY Times
  • Investors face fears over California Municipal Bonds – LA Times
  • State policies work against good fiscal management – LA Times

This may be posturing from the Governator to elicit a bailout from DC, or it could be something much gloomier. We’ll know before too long.

Disclosure on positions mentioned: Long gold, silver, and palladium bullion. Long EKWAX, GRZZX, GG