Thread: Calif. borrows $5.4 billion amid U.S. debt drama

Calif. borrows $5.4 billion amid U.S. debt drama

By Tami Luhby
July 26, 2011: 05:58 PM EDT

California secured a $5.4 billion loan to see it through the financial market turbulence that could hit if federal policymakers don't solve the debt ceiling impasse by Aug. 2.

Eight major financial institutions, including Goldman Sachs and Wells Fargo, put up the funds, which will help the state with its daily cash flow needs.

Also, the money will cover California in case the federal government delays payments for services such as health care and transportation.

"California had to obtain this interim financing to protect the state from the immediate, drastic consequences of a failure by Washington to resolve the debt ceiling impasse by the Aug. 2 deadline," said Treasurer Bill Lockyer.

The state had planned to issue $5.4 billion in short-term debt in late August, but opted instead for a bridge loan in case there is a federal default.

Lockyer plans to issue the debt eventually and use the proceeds to pay off the bridge loan.

States around the nation are drawing up contingency plans in the event that federal policymakers don't resolve the debt ceiling impasse by Aug. 2.

They are preparing for chaos in the municipal debt markets and delays in federal payments for Medicaid, education and other services, which could happen if the federal government defaults on its obligations.

From CNNMoney.com

Originally Posted by LAM

it probably would have worked better if the republican governors had not spent those monies to pay down deficits and on tax giveaways for corps, wasn't really the intended purpose. economic history over the past 30 years along with a 9% unemployment rate pretty much tells us all we need to know about the effectiveness of tax giveaways.

It's kind of a double edged sword. Some industries are subsidized so that they can be competitive in the international market. But deficits aren't sustainable forever. Although, I don't think there's any risk of CA closing the deficit anytime soon. Printing money out of thin air to make up for the deficit is screwing everyone. We're picking up the tab for it thru inflation as the dollar falls deeper into the shitter.