California is mired in a budget deficit of more than $24 billion, and is now planning on issuing $3.3 billion in IOU's in July alone. Sucks for Californians. So what's the larger implication? With Cap-&-Tax having passed the House, and Obamacare looming, then we could very well end up paying for it with IOU's worth less than California's.
But there may be some signs that there is still some semblance of sanity in Washington. Obamacare will cost more than $1 trillion (yes, trillion with a T). Opposition to the plan is now spreading to moderate Democrats (and should spread to any politician gives one iota about keeping their job). The only foreseeable way to pay for this thing is to increase/implement new taxes of some kind, and any option involving taxes is going to be widely unpopular (we won't mention Obama's commitment to not increase taxes for those making under $250,000/yr). So that leaves basically two options. Either health care reform fails completely, or Congress passes some weak bill that carries the name "health care", but doesn't actually do anything. With the Democrats now gaining the 60th vote in the Senate, the latter option is the most likely.
Obama has bet everything on passing health care this year. The publicity surrounding the California debt fiasco almost assures his resounding defeat.
It takes years and years to make a mess as terrible as the California debacle, but the recipe is simple. All that you need is two political parties that are always willing to offer easy government solutions for every need of the voters, but never willing to make the tough decisions necessary to finance the government largess that results. Voters will occasionally change their allegiance from one party to the other, but the bacchanal will continue regardless of the names on the office doors.
California has engaged in an orgy of spending, but, compared with our federal government, its legislators should feel chaste. The California deficit this year is now north of $26 billion. The U.S. federal deficit will be, according to the latest numbers, almost 70 times larger.
The federal picture is so bleak because the Obama administration is the most fiscally irresponsible in the history of the U.S. I would imagine that he would be the intergalactic champion as well, if we could gather the data on deficits on other worlds. Obama has taken George W. Bush’s inattention to deficits and elevated it to an art form.
The Obama administration has no shame, and is willing to abandon reason altogether to achieve its short-term political goals. Ronald Reagan ran up big deficits in part because he believed that his tax cuts would produce economic growth, and ultimately pay for themselves. He may well have been excessively optimistic about the merits of tax cuts, but at least he had a story.
Obama has no story. Nobody believes that his unprecedented expansion of the welfare state will lead to enough economic growth. Nobody believes that it will pay for itself. Everyone understands that higher spending today begets higher spending tomorrow. That means that his economic strategy simply doesn’t add up.