California economy crashes

The state of California is nearly out of money and nearly out of options.

According to the San Francisco Chronicle, Gov. Arnold Schwarzenegger sharpened his attack Wednesday against his fellow Republicans as he declared that California's budget shortfall has grown to $14.8 billion for the current fiscal year -- several billion more than the shortfall legislators already have been unable to solve.

One option to balance the budget is to cut state services. Politicians rarely like that. It looks bad to the voters. The Legislature could raise taxes on homes and businesses. That looks bad to the taxpayers, too. With falling home prices, failing businesses, and rising unemployment, getting more money into the state treasury may also be impractical.

That brings the conversation around to what happens on the day California can't pay its bills -- any of them. State workers don't get checks. Neither do contractors. Business failures and unemployment gets worse. The house begins to collapse in on itself.

It is too early to make a definitive statement about the eventual solution, but the only ready source of the magnitude of capital needed is the federal government. That would be the same federal government that is printing money to save banks, car companies, and mortgages. How many states will get into real trouble in the next couple of months? Add Michigan and Florida to the list. Unemployment is rising and property prices are plunging. The situation could give the bailout war a whole new front to fight on.

Douglas A. McIntyre is an editor at 247wallst.com.