California Just Put Washington in this Economic “Catch-22”
Government bailouts are being revived, and this time, unlike during the 2008 recession, it appears large financial companies won’t be the only ones asking for help.
The problem is, the government may not be able to help this time.
In response to a bloated state budget and a massive debt of over $550 billion, Newsmax reports that California Governor Gavin Newsom is looking for a bailout from the federal government:
Without an infusion of at least $14 billion from Congress, Newsom said the state would have to cut billions to public schools, not to mention hundreds of millions for preschool, child care and higher education programs. It’ll also need to eat into health benefits for the poor, among other things.
“The enormity of the task at hand cannot just be borne by a state,” Newsom said. “The federal government has a moral and ethical and economic obligation to help support the states.”
Obviously, Newsom’s decision to impose lockdowns in response to the coronavirus pandemic, resulting in more than 746,000 unemployed, partly explains the sudden need for cash.
Economist Robert Wenzel thinks the “lockdown is projected to lead to a state budget shortfall this year of $54 billion,” which is bound to make things more complicated.
Wenzel added another sharp critique of Newsom’s request for a bailout, and a comparison to Greece’s economic bust in 2007:
[Newsom] is now in begging mode just like Greece was, but, whereas a lot of Greece’s financial trouble was about paying off old debt, California’s problem is about running the current state government (and also local governments).
It sure seems like California has been playing a dangerous debt game, first ignoring economic realities prior to the pandemic, and then asking the federal government to send bags of cash so things can keep running smoothly.
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