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A-1, baby

California gets highest debt rating since 2001

Moody's Investors Service today (June 25) gave California its highest debt rating since 2001, boosting the rating from Aa3 to A1. Moody's rating is two steps higher than those given by Standard & Poor's and Fitch. The state's rating is equal with Connecticut and ahead of ailing Illinois and New Jersey, according to Bloomberg Businessweek.

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The state's debt metrics are still high but declining, notes Moody's. "A surge in revenue, mostly from capital gains and temporary income and sales tax increases, has taken the state from a $25 billion deficit three years ago to a record surplus," says Bloomberg. The ratings boost could be an election year gift to governor Jerry Brown.

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Moody's Investors Service today (June 25) gave California its highest debt rating since 2001, boosting the rating from Aa3 to A1. Moody's rating is two steps higher than those given by Standard & Poor's and Fitch. The state's rating is equal with Connecticut and ahead of ailing Illinois and New Jersey, according to Bloomberg Businessweek.

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The state's debt metrics are still high but declining, notes Moody's. "A surge in revenue, mostly from capital gains and temporary income and sales tax increases, has taken the state from a $25 billion deficit three years ago to a record surplus," says Bloomberg. The ratings boost could be an election year gift to governor Jerry Brown.

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Comments
12

TEMPORARY income and sales tax increases? Ok. A surplus? Fantasy. Speaking of fantasy, the so-called "bullet" train.

June 25, 2014

aardvark: Without a doubt, many argue that the so-called "temporary" income and sales tax increases will not be temporary. In addition, some say that Brown used phony accounting to wipe away the deficit and come up with a so-called surplus.

Remember what happened in San Diego: former Mayor Jerry Sanders cut out maintenance and routine infrastructure spending, then claimed he had balanced the budget. Today, the rundown infrastructure is one of the city's cancers. Best, Don Bauder

June 26, 2014

Moody's is drinking the Kool-Aid for sure. The other two rating services have called it better, even though they may also be too optimistic. We're not out of the woods yet as far as state finances are concerned. That "structural deficit" that was described by many of the more responsible state observers about five years ago is still there. It may be hidden in the shadows for now, but it is that 800 pound ape that it always was, and will be baaaack, and sooner than many think.

Talk of a "record" surplus is pure nonsense. If you hold any state or state-backed bonds, now might be a good time to sell them.

June 26, 2014

Visduh: Perhaps talk of a surplus -- much less a "record" surplus -- is dubious indeed. Unfortunately, to explain phony accounting to the voters is often futile. Best, Don Bauder

June 26, 2014

We are in great shape because we know the stock market will always go up and capital gains taxes will keep rolling in.

June 26, 2014

ImJustABill: Since early 2009, the stock market has been rising although the economy has been very weak compared with other recession recoveries. Basically, the market is running inversely to the economy.

Pushing the market forward are several factors: 1. Most importantly, the Federal Reserve has an incredibly easy money policy. Banks can get money for virtually nothing from the Fed. Bond yields are extremely low; holding cash is almost not worth the effort; 2. Companies, loaded with money (partly because they can borrow for such low interest rates) are buying back their own stocks. This tends to run the stock price up. 3. Companies are also raising dividends.

I have moved stocks to 50 percent of my portfolio. However, I know that this won't last forever. The Fed's balance sheet is a disaster and its feeble efforts to cut its buying of long term bonds to manipulate long rates lower give me little comfort.

Remember, it was just a few years ago that everybody thought housing prices could only go up. We have learned since 2000 that stock prices can definitely go down -- hard. Don't count on capital gains tax returns to keep going up forever.

I think you were just kidding when you made the statement. You didn't ask for the lecture I gave. I couldn't resist. Best, Don Bauder

June 26, 2014

Yes I was kidding but I do appreciate your insight. I'm just wondering what is going to happen when the Fed returns to some semblance of normal fiscal policy - or is QE the new normal?

June 26, 2014

ImJustABill: The Fed may finally stop the QE program but a weak economy and very easy money from the Fed may be the new normal. Thanks to the Fed, stocks are the only alternative for investors who believe in compound interest. These incredibly low interest rates hurt low- and moderate-income households that depend on bank deposits.

The Fed says it keeps rates low to boost employment, but that is hooey. The Fed is boosting Wall Street, and doesn't care that those in the bottom 70% are suffering. The Fed wants a weak dollar, which it has as a result of the easy money, and the weak dollar has enraged many foreign countries that are hurting more than we are. Best, Don Bauder

June 27, 2014

Imagine getting paid a fat salary (with an expense account and pension) for doing what? Spending all day finding new ways to screw over the public with never-ending taxes, laws, taxes, regulations, taxes, ever-increasing school fees, taxes, government spying, and taxes, all the while knowing you can get away with it because of the garbage of a legal system (ie. the CPUC et al) that California is famous for and that shields you from blame. Now you know what it is like to be a typical government employee.

June 26, 2014

MR: I can agree with much of what you say if one admits that we all get screwed by the private sector, too -- not just government. Government employees belong to civil service and get a certain amount of job protection. Those who are elected to office may get defeated, but usually retire with fat pensions and often can join lobbyist firms for fat paychecks. Best, Don Bauder

June 26, 2014

Yes, Don, the private sector is a major part of the problem. Actually, a key difference I see from our society compared to past communist societies is that instead of life revolving around doing everything for the benefit of the state, in our society everything revolves around what benefits big business. (That is not an open denouncement of business. A legitimate business CAN be operated without its primary objective being to confuse, lie to, and rip off consumers). Of course, big business owns the politicians who control government who rule over the non-elite.

June 30, 2014

MR: Very well stated. Big (and small) business owns the politicians who control government and make sure that a rising tide lifts all yachts, but not all boats. Trouble is, the yacht owners have not yet figured out that as the middle class collapses, they are losing their markets. Best, Don Bauder

June 30, 2014

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