Worst fire season in California’s history is underway, severe drought and high taxes. Yet, if you live on the coast, most people could care less. For now. Real estate is back to where it was at 2006 peak and 2007/2009 economic collapse is nothing but a distant memory.
The state of California has a tax structure that is inherently in favor of stock and asset bubbles. The biggest sources of income tax for the state include personal income tax, corporate tax, and sales tax. These sources are completely dependent on the health of the overall economy and can turn on a dime.
I would also argue that California has been one of the primary beneficiaries of the FED’s insane monetary policies since 2008/09 bottom. In other words, California is like a highly speculative stock (Netflix, Facebook, Tesla, etc..) while the rest of the US is more like a slow moving index fund. The problem is, speculative stocks tend to collapse. I have written about it before. San Francisco: The Most Insane City In America?
If you live in California, start putting your house in order. To be more specific, 1. Don’t touch California’s real estate with a ten foot pole (at today’s prices – unless you are a seller) and 2. Make sure you have job security. Some sort of a storm is coming.
Not quite, but the gap between the rich and the poor in the state continues to widen. This should not come as a surprise to anyone. California is a microcosm of the entire nation.
While a lot of people blame California Governor Jerry Brown, they have got it all wrong. The only people to blame here are as follows. Greenspan, Bernanke and now Yellen. It was this group of charlatans that lowered interest rates into the negative territory and flooded the market with cheap credit every chance they got. With this credit being disproportionately available only to the rich, it is no wonder the income gap continues to widen. As the rich continue to speculate with cheap credit, enriching themselves in the process, the poor continue to suffer. With food stamp use in California increasing 18.4% since 2011.
While most investors will brush this off as irrelevant, you shouldn’t. This is indicative of a much large systematic issue and a rotting underlying economy. This disparity cannot go for much longer. A healthy economy relies on all sectors of the economy performing well. Not just the rich. The bear market of 2014-2017 should make this more evident.
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California Beats U.S. in Millionaires, Food-Stamp Users
California Governor Jerry Brown, who decries a widening gulf between rich and poor, is campaigning for a fourth and final term presiding over a state that’s outpacing the U.S. in producing both millionaires and food-stamp recipients.
The number of households with more than $1 million in assets gained 3.6 percent since the Democrat took office in 2011, compared with 3.5 percent nationally,according to Phoenix Marketing International’s Global Wealth Monitor. Food-stamp use rose 18.2 percent in the period, almost twice the nation’s 9.4 percent, U.S. Agriculture Department data show.
Brown, 75, who signed a bill to raise California’s minimum wage to $10 an hour by 2016, goes before the state Democratic convention tomorrow unopposed after turning budget deficits into the largest surplus in more than a decade. California’s economic health improved more than 44 other states between the first quarter of 2011 and the second quarter of 2013, according to the Bloomberg Economic Evaluation of States.
“We have an increase in poverty and high-end earners and a decrease in middle class jobs,” said Rob Lapsley, president of the California Business Roundtable, a Sacramento-based group that’s criticized the high cost of doing business in the state. “The governor recognizes this and is starting to address it.”
Photographer: Ken James/Bloomberg
Jerry Brown, governor of California, introduces his 2014-15 budget proposal at the… Read More
Poverty Increase
Even as its economy improves, the most populous U.S. state saw a broad measure of its poverty leading the nation at 23.8 percent in 2010-2012, and the state auditor has warned that the pension fund for 868,000 current and retired teachers may run out of money in 31 years. Term limits prohibit Brown, who served twice from 1975 to 1983, from seeking the governor’s office after this campaign.
Neel Kashkari, one of two Republicans vying for that party’s nomination for governor, has based much of his campaign around criticizing Brown’s record on poverty and unemployment, and California’s below-average performance in math and reading on the National Assessment of Educational Progress.
“Jerry Brown’s legacy is the destruction of the middle class,” Kashkari told reporters yesterday inSacramento. “He is the caretaker of the status quo.”
Kashkari, a former executive at Goldman Sachs Group Inc. (GS) and Pacific Investment Management Co., managed the U.S. Treasury’s $700 billion bank bailout, known as the Troubled Asset Relief Program, in 2008 and early 2009. He and state Assemblyman Tim Donnelly, a Tea Party-backed Republican from San Bernardino County, have collected the most contributions to run against Brown, according to campaign finance filings.
Economy Critics
“There are two people in California who think that the state’s economy is worse than it was when Jerry Brown took office as governor,” said Dan Newman, a spokesman for Brown’s campaign. “Those are the two Republicans who happen to be running for governor.”
California’s unemployment rate fell to 8.1 percent in January from 12.1 percent in January 2011, the month Brown took office. The decrease of 4 percentage points outpaced a 2.5 percentage point decline in the U.S. unemployment rate in the same period, to 6.6 percent from 9.1 percent. California was tied with Michigan for the fourth-highest jobless rate in December, according to the U.S. Bureau of Labor Statistics.
Assessing a governor’s performance based on three years of economic data is a tricky proposition, said Christopher Thornberg, principal of Beacon Economics LLC in Los Angeles.
“It’s kind of silly to think that the governor of any state, much less California, has that kind of impact on an economy,” Thornberg said by telephone.
‘Rationality, Centrism’
He said Brown has helped steer the Legislature, which is run by Democrats, toward “rationality and centrism.” Brown has been prudent on state spending, Thornberg said. The governor hasn’t taken on the more important task of restructuring California’s tax system, which depends heavily on incomes of high earners, he said.
California’s economic health improved 6.65 percent on the Bloomberg’s state index between the second quarters of 2012 and 2013, ranking fifth among the top eight. The index measures mortgage delinquencies, personal incomes, tax revenues, employment, home prices and stock values. Idaho was first at 8.33 percent, followed by Colorado, Michigan and Kansas.
“By coming in and taking the approach of good fiscal governance, the governor has put things on a stable path,” said Lapsley of the Business Roundtable. “But now, what you see across all economic data is more high-income earners with most of the new jobs being created in the service sector. That’s not a sustainable future for California.”
Millionaires Grow
California had 777,624 households with at least $1 million in assets in 2013, up from 750,686 in 2011, according to Rhinebeck, New York-based Phoenix Marketing. The Golden State had 1.9 million households that used food stamps in 2013, up from 1.6 million in 2011, according toAgriculture Department data.
Brown in 2012 led a successful campaign to increase taxes on earnings of more than $250,000 for seven years and to increase the state sales tax by 0.25 cent per dollar for four years. The money was to be earmarked for public schools.
Brown proposed spending $45.2 billion for kindergarten through 12th grades in the year beginning July 1, up 25 percent from $36.2 billion in his 2011 budget. Still, California continues to lag behind most states in the U.S. Education Department’s annual report card, the National Assessment of Educational Progress. California eighth graders outscored five other states inmathematics and six other states in reading in 2013, according to the assessment.
Social Services
As Brown boosted funding for schools, his budgets have been more generous for social services. Brown proposes spending $28.8 billion on health and human services in the year beginning July 1, up 36 percent from $21.1 billion in his first budget.
As Brown prepared to sign the minimum-wage measure in Los Angeles last September, he committed to narrowing the gap between the wealthy and underprivileged.
“It’s my goal and it’s my moral responsibility to do what I can to make our society more harmonious, to make our social fabric tighter and closer and to work toward a solidarity that every day appears to become more distant,” Brown said.
