The state’s tax revenues are plummeting, its social-welfare system is overburdened and its bureaucracy is bloated. Yet California’s legislature has been deadlocked, unable to hammer out a new budget. As a result, state Controller John Chiang began printing IOUs last Friday, July 3. The initial run amounted to $53 million, but officials project that if the budget crisis is not resolved quickly, they will need to issue $3.2 billion in IOUs in July, and another $1.65 billion in August.

California’s economy alone would rank as the eighth-largest nation in the world, so it is a serious concern that its bond ratings may soon be lowered by agencies such as Moody’s and Standard and Poor’s, forcing the state to pay higher interest rates to issue bonds. (UPDATE, JULY 6: Since this report was published, Fitch Ratings has downgraded California bonds to "BBB"—not quite "junk bond" status but just barely "investment grade"). This in turn would put financial pressure on other states’ economies at a time when almost all local, state and federal entities are struggling to raise funds in global financial markets.

Government officials at all levels face a terrible dilemma, as noted in an insightful article by Morningstar senior analyst Jim Ryan. If they raise taxes to meet their budgets, the economy will suffer. Yet if they fail to meet their budget commitments—bond maturities, social welfare programs and vital infrastructure spending—the economy will suffer. If they seek to borrow more money, this will drive their jurisdictions deeper into debt, forcing tax increases that will cause the economy to suffer even more. No matter what the current office-holders do, they are sure to displease constituents and be voted out of office before long.

In such dire circumstances, who would want to take the reins of government? Indeed, the prophet Isaiah warned of a time when people would refuse to accept leadership positions, realizing that the problems around them are beyond their capacity to solve. “When a man takes hold of his brother in the house of his father, saying, ‘you have clothing; you be our ruler, and let these ruins be under your power,’ in that day he will protest, saying, ‘I cannot cure your ills, for in my house is neither food nor clothing; do not make me a ruler of the people’" (Isaiah 3:6-7).

During the recent housing bubble, some lenders wrongfully used their positions to enrich themselves by selling adjustable-rate mortgages to borrowers who could not afford the payments. Many of these lenders are now suffering along with their victims! “Come now, you rich, weep and howl for your miseries that are coming upon you! Your riches are corrupted, and your garments are moth-eaten. Your gold and silver are corroded, and their corrosion will be a witness against you and will eat your flesh like fire. You have heaped up treasure in the last days. Indeed the wages of the laborers who mowed your fields, which you kept back by fraud, cry out; and the cries of the reapers have reached the ears of the Lord of Sabaoth. You have lived on the earth in pleasure and luxury; you have fattened your hearts as in a day of slaughter. You have condemned, you have murdered the just; he does not resist you” (James 5:1-6).

The times soon ahead will become so hard, economically, that our money will have no value. “They will throw their silver into the streets, and their gold will be like refuse; their silver and their gold will not be able to deliver them in the day of the wrath of the LORD; they will not satisfy their souls, nor fill their stomachs, because it became their stumbling block of iniquity” (Ezekiel 7:19).

To learn more, watch our telecast, “What Caused the Economic Crisis?” or read our article, “Beneath the Tip of the Iceberg.” They will help you understand how our economy reached its current state, and what we can do individually and nationally to respond.

See Also:
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The Indian Sub-Continent: On the Edge of Chaos
Swine Flu and You!
America No Longer a Christian Nation? But Was It Ever?
Australia, Way Down Under!
The Death and Resurrection of the European Union?
Another War America Won’t Win
U.S. Bailout: Too Little, Too Late?
Australians mourn as fire death count rises