The article is a grim, sober account of what’s gone on in California – how it’s once-juiced up housing market came unwound before the rest of the nation; how the state’s economy has been suffering; and how it might signal woes for the overall U.S. economy.
For example:
• With its export businesses, manufacturing sector, professional services and big retail employers, California looks like many other U.S. states, only more so. California's $1.8 trillion economy -- twice the size of India's and accounting for about 15% of the U.S. gross domestic product -- is powerful enough to have ripple effects nationally.
• California was also at the leading edge of the nation's recent housing bubble, which is where its current problems started. Home prices in California rose higher and faster than in most of the U.S., and started weakening earlier, in 2005. Some mortgage-holders defaulted. Others struggle along under a mountain of debt. The problems spread to the state's financial sector, which was heavily exposed to local real estate. As Californians cut their spending, job losses spread from the housing sector to retail stores and auto dealers. Now the state's unemployment rate is 7.7%, among the highest in the nation.
The article closes by mentioning the impact on California’s governments. It is mistakenly asserted that government “spending can offer a buffer during times of economic weakness.” And the report mentions tax revenue shortfalls and budget deficits.
The article missed the fact that government spending sucks resources away from more productive private sector undertakings, and ignored the important point that California’s tax and regulatory structure are downright hostile to entrepreneurship, investment and economic growth. In fact, California’s tax rates on personal income and individual capital gains rank highest among the states, along with very high corporate tax rates. That’s not a positive combination for the state’s economy.
In order to revive the California’s economy in the short term and boost it over the long run, the state needs a dramatic change in policy direction – away from spend-tax-and-regulate and toward providing relief form the burdens of big government.
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
1 comment:
The turmoil in the global financial markets has cast its shadow on India’s largest real estate deal. India’s real estate developers, especially the mid-sized ones, have been facing a liquidity crunch since last year. Developers can no longer tap the external commercial borrowing route, while domestic borrowing costs have gone up on account of tight-fisted monetary policy, which is likely to harden further in days to come. In addition, the stock market has taken a beating with real estate stocks falling off their recent highs. Other sources of funding for instance, the London Stock Exchange’s Alternate Investment Market or listing real estate investment trusts abroad are also not feasible in current market conditions.For more view- realtydigest.blogspot.com
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