California Dreaming
Research for Online Investors

by John Dalt

10/11/10

California passed the California Global Warming Solutions Act in 2006.  This law requires the State Air Resources Board to establish limits on greenhouse gas emissions, then monitor and issue regulations to reduce greenhouse gas emissions to 1990 levels.

At the same time the regulations have layered onto the state, the economy has been battered by the credit crisis.  California is one of the hardest hit states by the housing crisis, and the state government is under pressure to cut spending.  The governor signed the state budget this weekend after marathon sessions in the legislature.  Tax receipts are down because of the recession.  California presently has an unemployment rate of over 12%.

This budget employs some wishful thinking as it requires $5.4 billion additional money from the federal government.  Legislators also expect the economy to improve enough that sales taxes and individual income tax receipts will increase $1.2 billion this year.

Friday the State Resources Board corrected their pollution estimate from 2007.  They were 340% too high!  The law has already cost California construction companies over $12 billion.  The bureaucrats are flustered that they could be off so much.  There is no puzzle here, the numbers were "cooked" by scientists and political appointees.  The lead scientist in charge of the study Hien Tran faked his doctorate from UC.

Citizens can vote to freeze provisions of the Global Warming Act in November. Proposition 23 would halt the enforcement provisions of the Global Warming Act until California’s unemployment rate drops to 5.5%, or below for one year. Opponents of the proposition point out that the state’s unemployment rate has only fallen below 5.5% for a year or more three times in the last 33 years.

Since 2001, California has lost 34% of its manufacturing jobs.  Voter initiatives such as Prop. 23 could over-ride the legislature and governor’s stupidity.  But don’t hold your breath that the “left coast” has suddenly realized their mistakes.  According to the Wall Street Journal, both candidates for governor oppose Prop. 23 as too draconian.

It seems California would rather ask for help and continue down their job destroying path than learn to compete with other states for jobs and wealth.  Where will it end?

This is the beauty of the Federalist system our founders created.  Each state is allowed to experiment and compete for citizens and industry.  A state may enact a high tax, high regulation environment at their own peril.  Nevada, Arizona and Texas will welcome your residents and businesses.

When the state budget goes in the red because the productive citizens (with their businesses) left; you either have to realize the error in your ways and change your laws, or ask for help and cry foul.  The more powerful our federal government becomes, the less the federalist system works.

This was the balance put in place by our constitution.  The founders realized the problems with democracies.  They also knew from history that a confederacy left the central government too weak.  They put in checks and balances to bring both systems together in a federalist system.  Let the states act as incubators of new ideas, and citizens could ‘vote’ with their feet.

California still has not heard, or does not understand the reasons people are leaving.  California’s budget and debt problems need to be resolved.  The state’s ability to service their debt has the potential to create havoc in the U.S. credit markets before the current recession is over.  Because California’s economy is larger than any other state and would rank eighth in the world if it was a country, their economic problems may cause more harm than many ‘sovereign debt’ concerns we have covered in past MarketToday articles.

Check out our ETF List page under Investor Resources.  We have redone this in the past week to make it a valuable resource for our subscribers.  It is handy to print and keep by your computer for reference.  You can click on the symbol and go to yahoo-finance for information.

To the Mailbag:
You must live in a small town with few stop signs, if any.  Most people who grew up in these fast disappearing communities are generally self-reliant and have a healthy disdain for government.  Sadly, as population density inexorably increases, there will and must be more and more regulations, more and more government.  It's inevitable and it's essential .---subscriber J.R.

John’s reply:   Actually, I live in the country with “Yield” signs.  The necessity of additional laws and regulations is in the eye of the ‘world improver.’  Some just can’t resist telling everyone else how to live, what to eat, what to drive, where to go.  We could easily say there are ten universal laws; all others are simply filling in the gaps.  Madoff and Obama violate them, only one is in jail, the other one a Nobel Laurent!

Editor’s note on “Yield” signs:  Yield means to be careful, you are responsible.  If you don’t look both ways and cause a wreck, it is your fault.  Government doesn’t tell you to stop, just be careful.  It is your life, live it.  I am not against Stop signs and lights, but think they need to be used sparingly.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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