From:
The TimesChristine SeibArnold Schwarzenegger has never been one for introspection but even the irrepressible Governor of California must be slightly regretting his decision in 2004 to disparage economic doomsayers as “girly men”.
With America's most populous state mired in the worst budget crisis in its history, brought down by a combination of rising unemployment, plummeting house prices, troubled financial markets and the peculiarities of its own legislature, it appears that the economic girly men were right to be worried. This weekend the Governor and Californian lawmakers were locked in negotiations, desperately trying to agree a budget that will cover a $42billion (£28.4billion) deficit in the state's finances over the next 18 months.
The weekend's discussions were the culmination of four months of arguments over the combination of tax increases and spending cuts that must be made to balance the books. Democrat members of the legislature have resolutely opposed cuts to social services, while Republicans have fought increased taxes and the former Terminator, without a sufficient majority to push a budget through, has been unable to broker an agreement.
Stephen Levy, chief economist at the Center for Continuing Study of the California Economy, held out little hope of a breakthrough. “They've been close to a deal for weeks so no one's holding their breath,” Mr Levy said. “It's embarrassing.”
Without a truce, the state will go bust this month. John Chiang, the state's controller, said that California had been borrowing from internal reserves and Wall Street to pay its bills but that its avenues for loans had been exhausted. The credit crisis means that banks have little taste for lending to a financially imperiled state.
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