2009 August 16 Sunday
California Debt Riskier Than Russian Debt

The market also thinks Michigan debt is riskier than Indonesian debt.

The annual cost of protecting holdings in Turkey’s bonds fell by half to $200,000 per $10 million for five years, or 200 basis points, sinking below New York City swaps for two weeks starting July 22, Bloomberg data show. Indonesia debt insurance dropped below Michigan the next day. Brazil swaps just had their biggest four-month slide ever. For China, protection is near the cheapest in a year. Eleven years after Russia defaulted, investors want less to insure its debt than California’s.

I'm living in a banana republic and I didn't even have to move. How cool is that?

Some US states are in serious trouble.

Most states have just approved a budget for the fiscal year that began July 1, and their legislatures have adjourned for the summer. But in a dozen or more states, those budgets have already gone into the red less than two months into the fiscal year, by a total of about $24 billion. More than 30 states are projecting deficits for next year, according to the Center on Budget and Policy Priorities, a Washington-based think tank, and other expert estimates.

You might expect that California can't borrow money or must borrow it at ruinous rates. Nope. Interest rates are so low that California might only pay 2.5% to borrow for several months.

Despite the much larger size of the RAN deal Lockyer is planning for September -- and despite California's image of fiscal dysfunction -- bond traders and fund managers were telling me this week that they thought the state might end up paying as little as 2.5% on the securities, given expected demand from yield-hungry investors.

So you gotta ask yourself, do you feel lucky? If you feel lucky you can get 2.5% tax free on California debt. Me, I'd rather buy stocks.

Share |      By Randall Parker at 2009 August 16 10:41 PM  Economics Squanderville Thriftville


Comments
A.Prole said at August 17, 2009 12:28 AM:

I love the way you use 'Russian debt' in a perjorative way.
The fact is that Russia enjoys a huge trade surplus and has enormous foreign exchange reserves, and is amajor exporter of oil, natural gas, minerals, timber, defence equipment etc etc.
What does California produce except the most disgusting pornography possible?
What future has California got with its dysfunctional melange of third-world thieves, murderers and gang-bangers?

James Bowery said at August 17, 2009 5:46 AM:

Well, look on the bright side:

Some Orange County Republicans guys got a little extra Mexican nookie for a few decades to make up for all the girls they lost to Hollywood casting couches.

Randall Parker said at August 17, 2009 7:20 AM:

A.Prole,

Russia defaulted 11 years ago. Russia makes its money from resource extraction and it might be past peak (past 2nd smaller peak) on oil production. Yes, definitely pejorative way.

A.Prole said at August 17, 2009 9:02 AM:

Randall,
I'm definitely NOT a commodities analyst, but I'm damned sure that Russia's natural resources reserves are enormous wth natural gas in particular being superabundant.
Any straight-forward balance sheet, bottom-line assessment of the state of the finances of the USA vis-a-vis Russia (here I'm talking about trade balances, capital inflows, exchange reserves and external liabilities)and projections of the same into the near future
shows Russia in a sight stronger position than the USA.
Oil is currently trading around $70 per barrel - even in the depths of the worst trecession in 80 years.

not anon or anonymous said at August 17, 2009 3:57 PM:
shows Russia in a sight stronger position than the USA.

What about the US excluding California?

MaryJ said at August 18, 2009 8:53 PM:

CA does have offshore oil resources they could allowed to be tapped to pay down its debt. The trouble is, they wouldn't use the increased revenue to pay off debt; they'd use it to provide further wealth transfers to NAMs.

Skallagrim said at August 19, 2009 2:07 PM:

"What does California produce except the most disgusting pornography possible?"

Hmm, Such an ill conceived statement. Should I start with the agriculture and quality of farmland (think oranges)? Maybe the Ports? Perhaps a jaunt south to the aerospace industries? The skunkworks, Grumman, Lockheed (regular), NASA all managed to contribute to the greater good. We can then swing up to the Bay Area, aka "Silicon Valley", the area where virtually every piece of computer technology in the hands of consumers today was pioneered. We can stop by Intel, Yahoo, Google, HP, EA, Apple on our way, after a grudging nod to Stanford, Berkley where kids kill cancer with nanotechnology at science fairs. We can swing up to Napa valley (after driving past some of the first "wind farms") and drink wines that kick the French stuff's arse as we contemplate an economy larger than most countries that has/is being wrecked by excessively liberal priorities and policies. As the melancholy of manufacturing lost to countries without a chokehold on their industries sluices away, some of us will get angry, think of something new, and keep innovating. Some others will whine...

Baka!

Skalla

Michael Blowhard said at August 20, 2009 10:58 AM:

California produces some first-rate pornography too.

Randall Parker said at August 20, 2009 8:10 PM:

Michael,

Hard times have fallen on the SoCal porn industry.

As an article in today's Times explains, the adult entertainment industry is in the midst of a major funk and it's not just about the recession. DVDs, which for years fueled its growth, is in steep decline. And massive amounts of free content on the Internet via dozens of YouTube clones dedicated to porn have sprung up.

Hollywood is familiar with those problems, of course. But not to the extent that those in the porn business are. Though there are is no reliable data or analyses of the industry, insiders estimate that revenue at most adult entertainment production and distribution companies has fallen 30% to 50% over the past few years.


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