by Matthew Piepenburg, Gold Switzerland:
Below we consider the State of California as the metaphor of a failed state as well as the failing state of the American Union, which is anything but a dream.
Metaphors
For those already familiar with my articles, interviews or even daily banter, I have an admitted affinity for metaphors and analogies, as they help draw the simple from the complex.
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Toward that end, I’ve 1) compared policy makers to failed generals, 2) debt and currency bubbles to Titanics, 3) macro investing to polo matches, 4) monetary policy to drug addiction and 5) the love of bloated bond markets to toxic romances.
As for politicians and political issues, there is always the risk of partisan bias and offending those who cling to only one perspective.
Fortunately, my take on the left or the right of current politics is fairly agnostic, as I view nearly all politicos as crooked as a dog’s hind leg.
Thus, as I turn my lens toward the state of California and its failed governor, I hope readers of the left or right can dispense with politics and just stick to math so that we can all get past the swamp of red vs. blue opinions and respect the objective facts of red vs. black balance sheets.
And when it comes to the State of California, she’s deeply in the red, and serves, ironically, as yet another broader yet applicable metaphor of the world economy in general and the United States in particular.
So, let’s dig in.
California Dreaming?
Oh, how I have loved California. It is home to some wonderful personal memories as well as personal wipeouts—and not just the surfing kind.
Its sunny appeal, however, is universally seductive, and like that famous Eagles song, one indeed feels like you can check in any time you’d like, but you can never really leave California’s tempting horizons and mythical spell where dreams come true.
Nevertheless, folks are leaving California, and have been doing so to the tune of over 500,000 exits in the last 2 years alone.
Why?
For those on the political right, California’s big-headed Gavin Newsom is an easy target.
His over-the-top COVID hysteria (similar to other failed experiments in Seattle, Chicago or Portland…) and unsustainable tax policies coupled with San Francisco’s soft-on-crime nightmare (car-jacking capital) and L.A.’s recent fall from City of Dreams to Tent City are all classic symbols of a failed state.
I once lived on this beach…
But let’s leave that issue, debate and fall to the woke, the left, the right, the angry and the smug.
For me, the math of California (whose nominal GDP ranked as the 5th largest in the world) makes the discussion far easier to sift through.
The Hard Reality of Simple Math
Like nearly all cornered politicians, Newsom is driven by obfuscating the obvious and trivializing the momentous (Chicago’s recently failed mayor of the nation’s “murder capital” comes to mind…).
For example, his January projected budget deficit of $22.5B (an already embarrassing figure which he nevertheless tried to downplay) was in fact off.
Way off.
It turns out that even Newsom’s “sunny” forecast and optimistic math had overlooked a few pesky facts.
First, the state’s monthly tax revenue for January was almost $14B less than the revenue for the month prior.
Secondly, California’s fiscal year, which started last July, is moving at a pace of $23B in less income than the previous year.
In short: California’s income stream is running toward an emptiness equivalent to Newsom’s IQ, despite sunsets as consistent as his immaculate wardrobe and “Hollywood” smile (smear?).
But as many Californian’s know—it’s not how things feel, but how they look which counts.
For the top income bracket, however, California’s tax bills (and revenues) aren’t looking good.
Even those wealthy and beautiful (from Topanga to Belvedere Island) are starting to squirm under a state tax structure that feels and looks anything but “dreamy.”
State tax for Californians earning over $1M is 13.3%, and the top 0.5% of California’s tax payers are responsible for over 40% of the state’s total tax income.
Many, of course, are getting sick of paying taxes for increasingly expensive sunsets, even from Orange County’s row of waterfront mic-mansions.
Furthermore, for those wealthy left-coasters who’ve lost their jobs or capital gains at Google, Amazon, Facebook and countless other Silicon Valley enterprises of late, that tax income is openly drying up, which means so are the state’s revenues.
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