California's Debt: Now Riskier Than Kazakhstan's - And A Bigger Worry Than Greece?

Just how dangerous is California's budget crisis?

Extremely dangerous, according to two recent evaluations of California's debt by financial industry insiders.

California's debt is seen by investors as riskier than Kazakhstan's, according to Bloomberg News. Five-year credit default swaps tied to California's debt, which are a key measure of the market's belief in the likelihood of default, are actually trading at 100 basis points above those of Kazakhstan. In other words, the market believes a developing country of just 15.7 million people is actually less likely to default on its debt than California, which makes up the eighth-largest economy in the world.

Here's Bloomberg News:

Kazakhstan and California, the lowest-rated U.S. state, share a Baa1 ranking, three steps above non-investment grade, from Moody's Investors Service. California was given a BBB by Fitch Ratings and A- by Standard & Poor's, four levels above non-investment grade. Both companies rate Kazakhstan lower, at BBB-, one step above high-risk, high-yield junk.

And last week, Jamie Dimon, the CEO of JPMorgan, the nation's second largest bank, warned that California's $20 billion budget gap could pose a bigger risk than the Greek debt crisis. Here's Dimon: "Greece itself would not be an issue for this company, nor would any other country. We don't really foresee the European Union coming apart."

In January, Standard & Poor's cut California's debt rating amid concerns that the state was not doing enough to bolster its budgetary woes. Reporting on the downgrade, Reuters pointed out that there are several countries with debt trading at levels above California's: "The cost to insure California's debt with credit default swaps is now higher than debt of developing countries, such as Kazakhstan, Lebanon and Uruguay. It costs $277,000 per year for five years to insure $10 million in California debt, compared with $172,000 for Kazakh debt."

Comments

[Ospree19]

09:28 AM on 03/03/2010

California is a broke, joke. Boxer, Feinstein, etc ruined it. Just like their kind do everywhere.

[Noell Reed]

08:26 PM on 03/30/2010

How True! I will indeed have a mental orgasm when I see the California Franchise Tax Board selling pencils on the street....ably assisted by the ex-legislators who have been thrown out of office by voters
This could all come true if all voters refuse to reelect any incumbents or party hacks of any stripe for any elected office.
That would clean house properly.

[Avanti2]

01:06 AM on 03/03/2010

This Calif. Debt Problem appears only to be solved by selling off assets. I wonder if the Chinese might be interested ?

[MikeTN]

12:45 AM on 03/03/2010

California produces a lot of fuits and nuts (the two-legged kind)

[DannyGee]

11:25 PM on 03/02/2010

California suffers from incurable liberalism. entitlements out the wazoo with no leader with the ballz to end them.

[maxben]

02:23 PM on 03/03/2010

Disagree. You need to raise taxes to protect benefits. After all, I'm sure you pay one of the lowest tax rates in the Industrialized world so you can't claim you are overtaxed.

[DannyGee]

02:33 PM on 03/03/2010

you can disagree all the want. it doesn't change the facts.

by the way, i love your expression "protect benefits". That is entitlement thinking at its finest. you think our foreign competition thinks like that?

[Brokenduck]

10:48 PM on 03/02/2010

Schwarzie came into office swearing that he would reform government by cutting waste. In fact, that always seems to be Republican boilerplate. The Governor has now had seven-point-five years to identify these wasteful programs that need to be cut. What are they? Name us some specific programs. Please....someone on the right please enlighten us.

[High Templar]

01:16 PM on 03/02/2010

More entitlement programs, that will get California's economy back on track. By the way, why not tax the movie stars at 90%. I'm sure upstanding folk like them won't mind.

[maxben]

02:24 PM on 03/03/2010

Why not at 50%? Along with bankers and lawyers and politicians, the actors can handle a 50% income tax without a problem. There is no defense if the Liberal Elite decides to fight against an increase in taxes.

[mindy888]

12:47 PM on 03/02/2010

Arnie is destroying California. Right now he has hired private attorneys (KMTG firm) to fight the employee unions because he illegally furloughed state employees who are paid by the federal govt. not the general fund (CA’s money). The law suits have already cost tax payers $750K and oh guess where he is getting the money to pay the attorneys—the general fund.
It is these “criminal” acts/decisions that are flushing this beautiful state down the toilet.
Arnie is so corrupt…he has a buddy Stewart Resnick (of Roll International—Fuji water, POM juice, CA farmer) who “donated” approx. $250K to his campaign. Mr. Resnick, who owns water in CA(sounds funny I know), sells his water back to CA for a phenomenal fee. Resnick also stands to benefit from a bond measure that Schwarzenegger (and Feinstein, who also receives money from Resnick) sponsored.
And how are these two situations related…KMTG is the law firm suing the federal govt over Delta Smelt (a fish) but this is a smoke screen because what the law suit is trying to do is obtain more water for farmers like…Stewart Resnick!
So Resnick and Arnie , Arnie and KMTG are money exchanging buddies and are bilking the tax payers and state employees out of millions of dollars, AND…KMTG and Resnick are on the same team trying to get CA water, which Arnie is backing a $9.3 billion dollar bond-WHEW!
So Arnie is taking care of his friends and screwing the rest of CA.

[tuberider]

01:53 PM on 03/02/2010

In the current Ca. economy, the BIGS appreciate the priority of wrapping up water rights PRONTO. Re-decorating the little chalet for Ivanika in the Swiss Alps will just have to wait. There's very little out there in lotus- land left to exploit!

[larmarch5]

11:47 AM on 03/02/2010

CA requires a super majority to pass budgets. CA has term limits. Elected officials come and go, but lobbyists are forever. SoCals want their water, maids and gardeners and the rest of the state to pay for them.. Three Strikes and War on Drugs guarantees prison industries' and guard union's success. Prop 13 created the most unfair tax possible, ensuring young people and newcomers to the state cannot afford to buy homes. Commercial property owners set up "holding papers" for properties so they can be sold again and again for higher prices without any change to their low tax rate/basis.

Legalize, regulate and tax marijuana. Many problems sold. Revise property tax rules, two generations could afford to buy houses.

[Ospree19]

10:37 AM on 03/02/2010

I'm sure all the debt was wracked up under Arnold. No Dem is responsible?

[mdlawyer2]

11:06 AM on 03/02/2010

The debt really isn't the issue. The issue is the State's inability to match revenues and expenses. It's really like going on a diet, less calories in and more exercise to burn calories. California needs to cut (constitutionally madated) expenses and do away with (constitutional) hurdles to raising revenues. This is Reaganism at its finest, a governmental entity with no ability to pay its bills.

[tuberider]

09:28 AM on 03/02/2010

Guvanah Hummah: wad a visionary!

[seawolf77]

07:07 AM on 03/02/2010

As California goes, so goes the nation. Wait till they have the big one. We'll be looking back wistfully on a 20 billion dollar budget shortfall

[cbzd]

03:01 PM on 03/02/2010

Um: not so much, we have water here in the frost belt, so cheers

[mamacat]

06:48 AM on 03/02/2010

It is time to bring back majority rule, and democracy, to California. The 2/3rds rule required to pass any budget measures is ridiculous, but the GOP love it. Like the filibuster rule in the Senate, Cali's budget rule has enabled the minority to dominate the majority.

[Bettysdad]

04:50 AM on 03/02/2010

Ronald Reagan and Howard Jarvis are about to explode with glee.

[corwin]

05:41 AM on 03/02/2010

Diffidently, I point out they are both dead. And, I want to take a few moments to urge you to examine a few points. Since, Prop 13,Calif tax revenue has outpaced both inflation and population growth-combined. It's public employee payrolls and benefits are 74% above the nat'l average. (Sorry to bring actual information into your life.) The state is in a free fall .. You seem to be more able to find the equivalent of "Bad Guys" on an old Western than to deal with actualities. Alice was famouslyadvised by the Red Queen to think of 3 impossible things each morning. I'd like to advise the converse for you.COnsider this:"Reality.What a Concept."

[mamacat]

07:05 AM on 03/02/2010

Prop. 13 has effectively shifted the property tax burden onto those who have purchased property since 1979, and off of those who have held it since before then, which means that large corporate interests are not paying their fair share of property taxes. Very few homeowners bought their property over 30 years ago, but large commercial corporate interests, such as Big Oil, the railroads, and the agribusinesses, will hold their property ownership in perpetuity, even as their CEOs grow old and retire.
If Prop. 13 had had provisions in it to more fairly tax corporate owned land and buildings, instead of shifting the tax burden onto homeowners, it would have been fairer and not so devastating to the State's budget.

[Bettysdad]

01:58 PM on 03/02/2010

I'd like to point out that reality is created.

Actions have consequences.

The consequences don't just show up some day. Someone causes them.

You're just a Republican.

[Emucrat]

03:27 AM on 03/02/2010

California's GDP is about $ 2 trillion. The "record" debt will be $ 20 billion. Doesn't this mean that our debt is 1% of the state's GDP?

FACT is California would be well off if certain Rethuglican Presidents (Reagan and the Bushs) would not have deregulated the market so that it could crash! We also would have a balanced budget if our Rethuglican Governor would have the guts to force the rich to contribute their share to our beautiful state.

We need to get rid off the the 2/3 majority to pass a budget. Rethugs abuse it for their meaninglöess distractions and procrastinations.

[ChelseaC]

03:52 AM on 03/02/2010

Clinton was up to his ears in deregulation too--why do you leave that out? Glass-Steagall--hello! Both parties are to blame and it keeps going.................. GREED.

[Emucrat]

03:58 AM on 03/02/2010

Of course. But he deregulated in his last months. Before that we tried health care reform, welfare, all rejected by the American (Re)public(an Party)!

[truthbuster]

01:16 AM on 03/02/2010

Bring it on girly man.