Junk Bonds

While we push for this program or that program to be kept out or left in the final budget, the investor class has rendered their verdict on California, and you can hardly blame them.

The downgrade of $46 billion of California's general obligation bonds by Standard and Poor's on Tuesday sets the stage for similar actions by Moody's Investors Service and Fitch Ratings as the state's budget crisis persists, analysts said on Tuesday.

"It's a red flag," said Christopher Thornberg, an economist with Beacon Economics in Los Angeles. "What they're responding to is the fact that the state is running out of cash."

S&P cited the state's weakening finances and slow talks between Gov. Arnold Schwarzenegger and lawmakers over closing a budget gap topping $40 billion through this fiscal year and the fiscal year beginning in July.

The agency cut its rating late on Monday on California's GO debt, which is backed by the state's general fund, to "A" with a stable outlook from "A+."

The final straw was California's cash shortage. "It just to us indicated another level of distress in the overall situation," said S&P director Gabriel Petek.

What this means is that the value of outstanding bonds will be lowered, and more importantly, it will become incredibly steep for the state to borrow money. If you weren't aware, that's how we finance the state. It will not be possible to do so at usurious rates, which we brought completely upon ourselves, and so there is now no reasonable way out of the death spiral. No matter what the budget solution.

Congratulations, Yacht Party. You sunk California. Have fun living in it.