“California has never failed to make its bond payments on time and in full, not even during the Depression. And there is no chance we will smudge that pristine record,” the editorial reads.
The same sentiment lately has been getting more ink in the financial press, where columnist Brett Arends has urged investors to buy California bonds, despite others making the case that California could easily be the next Greece.
“California’s latest budget shortfall, $20 billion over the next 18 months, looks a lot less intimidating when compared to the $1.9 trillion state economy,” he wrote. “So too does the size of the state’s general obligation debts: Standard & Poor’s says there are $64 billion in Californian general obligation bonds – those backed by the state’s tax power – outstanding.”
He made a similar case in MarketWatch late last year, arguing that the state’s overall economy relative to its debts should put to rest any concerns that California might soon default.
It’s persuasive. You can hear it anywhere. But it’s total hogwash. You might just as well believe that California is inhabited by pixies from the planet Mars, or that the budget problem in Sacramento has been caused by a giant sea monster destroying downtown San Diego.
It’s not just slightly wrong. It’s almost totally wrong.
California’s a basket case? The state has one of the highest living standards in the country, yet over the past 10 years the economy has still grown much faster, per person, than the national average. According to the U.S. Bureau of Economic Analysis, it’s up 15 percent – compared to 8.9 percent for the U.S. overall.
His column goes on to tick off example after example of the state’s fiscal health: high living standards, growing economy, a majority of venture capital investment, taxes that, although high, aren’t stratospheric, at least by comparison.
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