California's Gov. Schwarzenegger Likely to Seek More Federal Assistance to Cut Deficit

California's double-digit unemployment rate has been among the highest in the nation, and state coffers, like those in Michigan and New York, among other states, have been hit hard by the reduction in state taxes paid stemming from those lay-offs.

Fiscal/Economic Analysis: California, already a fiscal "canary in a coal mine," may become a structural economic "canary in a coal mine," too.

The problem: States offer services that presume high levels of employment and rising incomes, not economies permeated by lay-offs and stagnant/declining wages. It's too soon to tell, but the initial data is pointing to yet-another structural imbalance in the U.S. economy: an imbalance in which one will have to give way -- i.e., either spending will have to be reduced further or real, median incomes and wages will have to increase.

The one caveat to the above structural imbalance? If job growth resumes (as it does during a normal recovery), that would result in a considerable increase in state (as well as federal) revenue. However, assuming "normality" about this economic cycle is the equivalent of skating on thin ice. Hence Gov. Schwarzenegger's likely, pre-emptive request.