Apologies again to my readers. Due to preparations for an upcoming family reunion, I have not had the time or energy to write my regular column. In its place, I did find an interesting news article from ABloombergNews.com that I thought my readers might appreciate. My regular column may return next week.
WASHINGTON, D.C. -- In a move that analysts are calling a brilliant combination of fiscal and political calculus, the United States has agreed to sell the state of California to the People's Republic of China for a portion of China's U.S. federal debt holdings. The selling price was not released.
According to one political scientist, Georgetown University's Holden Cardwell, this sale was to be expected in its general direction but not in its scope. "This is unusual in that foreign creditor nations typically buy up debtor nations piecemeal, one major corporation, one sizeable real estate holding at a time," said Cardwell, "but not in a chunk as large as a state like California." California's economy is the largest of any U.S. state, and would be, if it were a country, the eighth largest economy in the world, said Cardwell.
The sale of California will solve one looming crisis for the federal government. As it is financially insolvent, it was only a matter of time before California went bankrupt and came to the federal government for a handout, a bailout or in receivership, said Cardwell.
California, to use a real estate term, is under water, said former Bear-Stearns government securities analyst Mortimer Grist. "Completely submerged," said Grist, "with little likelihood of getting its nose above the surface anytime soon. The entire crew of Baywatch couldn't rescue this puppy."
According to BusinessInsider.com, California currently faces an estimated $25 billion shortfall and red ink for as far as the eye can see.
Because of the state's massive debt obligations, particularly public employee pension funds, the sale of the state will bring in relatively few dollars to the federal treasury, but will prevent a major default in state issued bonds and relieve the federal government from assuming responsibility for these obligations.
[Editor's note: In 2006, California’s local government employees were paid on average $60,780 annually. Under one California law, Three-for-Thirty, public employees get a pension of 3% of their salary for every year they work, so that after 30 years of work, with a retirement age as young as 51, an employee could receive 90% of his or her final year’s salary. As a result, in 2009, for example, about 3,000 former public school teachers received pensions of more than $100,000 per year, some collecting more than $150,000.]
President Barack Obama supported the move on a political as well as financial basis. "It will free me from my friend Nancy [Pelosi], who lost me the House I had won," Obama is said to have said, according a well-placed White House source.
Senate majority leader Mitch McConnell, for the first time in the Obama era, worked with the president.
"Giving him one bipartisan victory was worth it to McConnell and the Republican House majority leadership," said a source within the Republican caucus, "if only to get rid of Hollywood."
"I would have been willing to give up the whole Pacific Time Zone not have to listen to Sean Penn testifying in front of one more Senate hearing on God knows what," said Senator Jon Kyl (R-Ariz.).
The sale itself did not surprise some economic observers but China as the buyer did. Financial analysts had long thought that the best offer was likely to come from one of the major Mexican drug cartels. Rumor had it that drug lord Rafael Muñoz Talavera of the Juárez cartel made a lucrative cash and in-kind offer that was being seriously considered before the emissaries from Beijing arrived on the scene.
Early polls of California residents show a split on support for the Chinese takeover. A majority, especially high among those from the Bay area, support the sale. Those opposed, most of whom are clustered in the Beverly Hills area of Los Angeles, expressed disappointment that the reputed offer from Venezuela had not been more seriously considered.
Gary D. Gaddy has a North Carolina state government pension due to him -- some day -- but it won't be worth writing a column about.
A version of this story was published in the Chapel Hill Herald on Friday November 19, 2010.
Copyright 2010 Gary D. Gaddy