If I remember right, the state of Californa had a $7.5 billion budget surplus. Estimates of expenditures will hit $7.3 billion today. There surplus will be used up in the next few days.

At that point they will have to switch over to their general fund to maintain their strategy of bailing out the utilities or accrue debt at the rate of $1000 per second.

Correct me if I'm wrong, $13.5 billion in bonds has been approved. Moodies has downgraded CA. to A3, from A1. The bonds are not selling yet. The rate increases that have been levied are not adequate to cover the current costs, let alone pay off old debt and the new debt that will be incurred. There is still no long term contracts in place. They are still buying at high prices on the spot market.

Numerous municipalities own their own generators (Los Angeles, Sacramento, Burbank) and they're not being affected by the crisis nearly as badly. BUT, their tax dollars are still being used to bail out the rest of the state.

So my conclusion is, this week or next, the chickens come home to roost, CA runs out of money. State expenditures will have to be curtailed to pay the energy bills. They begin the path to bankrupcy.

If the bonds don't hit investors fast, and if investors don't receive the bonds with open arms, CA will travel the whole path.

This is what happens when politicians engage in market controls that they know nothing about.

Politics-Poli means many--tics are blood sucking parasites.

On the positive side. When the money runs out, when the deep pockets are empty, they can then begin the process of finding long term solutions. Energy prices will begin to drop. As long as the cookie jar has something in it, hands will be in it. When the jar is empty the gouging and posturing will cease.

-- Tom Flook (tflook@earthlink.net), May 28, 2001

Answers

Excellent analysis, Tom. As a California resident, who watches this situation closely every day, I can say unequivocally that you are right on the mark.

-- JackW (jpayne@webtv.net), May 28, 2001.