California is Bankrupt?I know what it means when someone is bankrupt, but what does it mean when a state is bankrupt, like California? Please give me details or a list of consequences that California will have to suffer through for spending to much money? -thanks in advance | |
Many consequences could happen to a state declaring bankrupty.
First, just like an individual, nobody wants to lend $ to a bankrupt state. So CA might want (and need) to raise millions of dollars to repair roads, build bridges, and maintain parks and (state) government buildings, but they will find it harder to do so. They might have to increase the interest rate on their bonds (that's the way most governments raise $) just so people purchase the bonds. It's a vicious cycle, because CA doesn't have $ to begin with, and then they have to pay even more $ in interest because they didn't have the money in the first place.
Secondly, CA may not be able to pay its state government workers, and the banks that those workers use might stop cashing those checks. Again- nobody wants to end up unable to collect. This applies to vendors also- instead of getting paid they get an IOU slip that says that CA owes them. Great- an IOU can't be cashed.
Lastly with so many angry Californians the politicians may end up taking the heat, justly or unjustly. Look at what happened to Gray Davis 10 years ago. He was recalled from office because the economy tanked.
This is no means a complete list. Other posters probably have more points to add to the discussion.
Good question!
