The $1.1 trillion budget bill also adds about $5.4 billion for new labor, education and health spending in addition to billions more to meet a shortfall in Pell grants for low-income college students; $1.25 billion in spending related to health care reform; including 6,600 legislative earmark provisions where $8 billion within the bill should be spent.

Unfortunately this congressional mad hatter spending will not help get the country back on track with jobs or create an opportunity for business growth.  What it will do is create further drag on the economy as greater revenue is required to pay down the interest on the debt to finance these spending programs bought on Chinese credit.

We can hope the new congress will begin to rein in spending which will still require the president’s signature for passage.

There is no stimulus to come from a one year 2% payroll tax rate cut; There is no stimulus in raising the estate tax from zero to 50%; tax credits for ethanol help an industry already on federal life support, to mention a few.   However, what has in effect happened is that America will soon get a second $858 billion Stimulus over two years, lets not forget the first Obama $814 billion 2009 stimulus package.  This time Obama got the Republicans to offer to increase spending by $858 but $630 billion of the tax bill is earmark spending above and beyond extension of the Bush tax cuts.

This is not good economic news for a future forecast that the recovery is taking hold.  Just when we thought the reckless spending was over its damn the deficit, full speed ahead with spending more borrowed Chinese dollars.

While oil prices would have to go back to their 2008 highs to slow the economy the recent run-up towards $90/bbl is already doing its damage. Gasoline prices at the pump are now over $3/gallon in 20 states and the surge has effectively drained $40 billion out of household cash flow. So, a good part of that Bush tax cut extension is going to be siphoned into the gas tank.

Those now receiving unemployment soared 523,000 to 4.2 million the latest week and they will receive continuing payments of unemployment checks instead of standing in soup lines.

Imagine embarking on more fiscal expansion at a time when structurally the budgetary gap has breached 7% of GDP and the Fed going along the road of even more radical expansion of its balance sheet with quantitative easing II, and a congress that was just spanked for creating fiscal excesses is now tapping into the Social Security fund so as to stimulate consumer expenditures.

Now Democrats opt for the tax cuts they reviled in 2008 and the lame duck congressional leadership appears in line to run up the fiscal tab even more with a trillion dollar continuing resolution/omnibus spending bill to fund the federal government through next year; remember they did not pass a federal budget yet, and this resolution contains even more democratic pork barrel spending.

WHATS HAPPENING IN THE REAL ESTATE MARKET?

It’s perplexing that the latest down-leg in U.S. home prices has gone virtually unnoticed by the media and the markets. The Case-Shiller index is down in each of the past three months and there is still roughly two years’ of unsold inventory overhanging the market once the “shadow” foreclosure backlog is included.

Housing demand is dormant as home buying intentions slipped in December to a level that can only be described as anemic. Mortgage applications remain near decade-low levels and part of this reflects lingering caution among private lenders who are still maintaining fairly stringent credit guidelines.

A FEW OF THE LATEST HEADLINES FOR DECEMBER

Housing Wire – “Robo-signing hangover slows foreclosures in Western states” (12-14-10)

“Foreclosure sales in Arizona, California, Nevada, Oregon and Washington fell 38.7% in October and November, according to ForeclosureRadar.”

CNN - “Obama’s mortgage mod plan is still lacking” (12-14-10)

“Last April, the Congressional Oversight Panel found the program to be struggling to get off the ground despite having been in action for a year and a half. The latest evaluation of the Home Affordable Modification Program (HAMP) came out Tuesday and the result was — same deal.”

San Francisco Chronicle - “Loss of estate tax leaves hole in state budget” (12-14-10)

“The proposed tax deal in Congress would fail to deliver about $2.7 billion in estate tax revenues California was counting on receiving this fiscal year and next, but some say the state should never have expected those revenues in the first place.”

Housing Wire – “LendingTree survey shows 40% of homeowners took first loan offer” (12-14-10)

“Roughly 40% of current homeowners surveyed by the online lender exchange LendingTree obtained just one mortgage loan quote before purchasing their home. LendingTree and the Harris Interactive surveyed 1,317 homeowners online, and of those 96% said they compare prices when shopping for anything – except mortgages. This, according to LendingTree, explains why only 28% surveyed feel confident they got the best possible deal on their loan.”

Associated Press – “Fewer homeowners underwater in the third quarter” (12-13-10)

“About 10.8 million households, or 22.5 percent of all mortgaged homes, were underwater in the July-September quarter, housing data firm CoreLogic said Monday. That’s down from 23 percent, or 11 million households, in the second quarter.”

Housing Wire – “Zillow: Home values crater by $1.7 trillion in 2010″ (12-9-10)

“U.S. homes are expected to lose more than $1.7 trillion in value this year, 63% more than the estimated $1 trillion lost in 2009, according to Zillow.”

Housing Wire – “Double dip in some markets drag home prices down 5.8%: Clear Capital” (12-9-10)

“Home prices in November dropped 5.8% over the previous three months and are down 2.7% from a year ago, according to real estate analytics firm Clear Capital.”

Housing Wire – “Fannie Mae survey finds traditional homeownership changing” (12-9-10)

“51% of survey respondents said the housing crisis has not affected their overall willingness to buy a home, 33% said they would be more likely to rent their next home than buy. In January, 30% of Americans surveyed said they would rent a home the next time around.”

Housing Wire – “Fitch sees 10% drop in home prices in 2011, negative outlook for MBS” (12-9-10)

“Fitch Ratings expects another 10% decline in home prices in 2011, as the supply of distressed properties continues to weigh down the housing market. Accordingly, analysts maintained the agency’s negative outlook for the residential mortgage-backed securities space and said 53% of all investment-grade RMBS rated by Fitch have a negative outlook.”

HOW ABOUT THAT GOLDEN STATE CALIFORNIA!

Governor Re-elect Jerry Brown says California’s budget deficit may hit $28 billion, and last year it was a meager 19 billion that was apparently closed by Governor Schwarzenegger this past budget year, with gimmicks to reach the balanced budget requirement like trying to borrow $3 trillion in bonds all at once.

California’s Politicians are solely responsible for this fiscal mess from spending on programs when revenues were dropping and for not having any fiscal restraint.  They are also responsible for using borrowed money to pay for current expenses until they had borrowed more than they now seem able to pay back.

REVIEW OF CURRENT GROWTH, EMPLOYMENT STATISTICS AND AFFORDABILITY

Growth is down, unemployment is up and home prices are in the tank.  These are good times for purchasing homes and reselling them, and holding on to assets that will take off when the economy turns and inflation takes off.  Home mortgage rates are now trending upward and the bond market is following suit.  California will need funding from the federal government to stay afloat, raise taxes, cut spending and pay higher rates for borrowed money due to its terrible credit standing.  Raising taxes will not help the numbers on the chart above.

The definition of insanity doing the same thing over and over again expecting different results………Einstein



As reported here yesterday Comrade President Obama’s healthcare plan is headed for national scrutiny by a public that cannot understand his fiction from today’s reality.

The Congressional Budget Office’s numbers that show a major cost increase of one trillion over 10 years, and he says there will be no cost increase to both health care costs and the federal deficit? How can any sane person let alone the POTUS  make the argument that a massive expansion of government spending on health care will solve a financial problem by putting one-seventh of the economy under direct control of the federal government?  How can he repeat the absurdity that the federal government can save Americans money if they buy into it? When has the government ever run anything efficiently? Why can’t he explain to the American people what the details of the health care program are?  He says he will sign whatever the liberals in congress put across his desk on healthcare without providing any leadership in what direction this legislation should take?

Why is Comrade President Obama being so oblique on the details?  Is it because he is a Marxist-fascist liberal who hides behind his vagaries so that the true color of his ideology doesn’t shock all Americans of the monster they have let loose in the White House!

What of the asinine argument that a doctor will take out a kids tonsils instead of sending him home with medicine because the doctor can make more money?  Is this why we need National Government Health Care? NO!

If we needed specifics from the Comrade in Chief we got them in the softball preapproved questions from the press gallery about the arrest and subsequent release of a black man who broke into his own home and happens to be a friend of the Marxist-fascist President.

The President called this police officer who made the arrest stupid and indirectly a racist, as he stood at the podium explaining that “we have come a long way be we aren’t there yet” then told America that there are a disproportionate amount of black and Mexican people being arrested as compared to whites as if committing crimes and prosecution of them should be based upon affirmative action and quota standards not on the criminals act!

America now has a Racist in Chief who wants to get his hands on all Americans health records so privacy is in the “trust” of the federal government! The new Nazi commander wants to have “his government” make choices as to who lives and who dies.  How?  By government cost cutting measures that he will not outline, but will Americans believe the eloquence with no substance as he leads them to fantasyland by promising them an “E” ticket to the federal health ride that has life or death consequences?

The Comrade in Chief says the healthcare system is broken.  Where is it broken?  Because health insurance companies, Doctors, and the pharmaceutical companies are making profits the government must step in and control healthcare? What of the hundreds of millions and years it takes just to get one drug tested and on the market, could the profits possibly reimburse the cost of that?

What is wrong with making a profit in the USA?  Capitalism created the greatest economy in the world and one Marxist-fascist in the White House is attempting to make profit a dirty word!

The President said the Cops acted “stupidly” in arresting his buddy, the real stupidity lies in America accepting empty eloquence for facts that will have a direct consequence on their life and death!

The Conference Board’s Index of Leading Economic Indicators (LEI) is a tool to predict a recovery or recession. This index is reported monthly and is made up of ten economic components that can reflect upcoming changes the overall economy. It has been an extremely reliable indicator and may be able to forecast when and if a turnaround in the 2009 recession/depression forecast is about to occur.

The LEI had been on a general downtrend since reaching a peak in July 2007, however in May the LEI rose 1.2 percent after a revised 1.1 percent increase in April. This was the best back-to-back performance since November-December 2001.

Is this a time for lowering the white flag that the recession is over?  Hardly, the year-over-year percentage change of the LEI over a three month period NOT two months could give a bear bull indication either way

The Financial variables of the LEI economic components stock market rally, and growth in real money were fully responsible for the positive LEI during the last two months. However, the five economic variables of the LEI made no positive indication that the recession/depression is over.  Collectively in the negative were, average hours worked, jobless claims, real consumer goods orders, real core capital goods orders, and building permits.

Historically, the LEI change to the positive declaring a end to a recession occurs when all economic variables join the positive development of the other variables.

Perhaps the best indicator would be that Comrade President Obama first Lieutenant Axelrod, in charge of enslaving Americans with an insurmountable debt burden has indicated a need for more stimulus money.   Since the past two stimulus packages have not put any one to work as indicated by the LEI  a third debt package is necessary because unemployment rates continue to rise, despite the LEI increase in the financial sector.

On CBS’s “Face the Nation,” Mississippi Gov. Haley Barbour (R) said that the $787 billion fiscal stimulus package passed earlier this year is “far too expensive.” The Obama administration argues that it will save or create 3.5 million jobs over two years.

“I don’t think we need to have another multi-hundred billion dollar, trillion dollar spending package,” Barbour said. “While this may have some short term positive effect…the real long term effect is very negative on interest rates, inflation and the value of the dollar.”

The real gambit is politics, if the Democrats cannot show that throwing trillions of taxpayer dollars down the garbage disposal cannot help the economy they are doomed in the 2010 elections.  Unless they can continue to cajole and preach bull markets to true believers while reality presents irrefutable facts to those few who possess some common sense, and know when  it is time to flush the toilet, the Politburo will remain in control of government and American lives.

The Messiah’s high popularity numbers though dropping below 60% indicate the cool-aide drinkers, still have their party hats on! When they wake up with a Marxist-fascist stomachache and understand that they now work for the government not for themselves, they will find that cool-aide is too expensive, unless they have a federal government job.

Let us remind the Democrats who voted for Obama-Biden that they are Marxist-fascists pigs.  Government cannot sustain itself but through taxation.  The largest government expansion in history is now occurring but for WWII, it must feed itself by taxing the private sector.  Cap and trade legislation just passed by the house is the largest tax bill in the history of the world, unless you consider China’s communist government that did not allow voting by the people affected, but then again neither did we Americans!

People tout Warren Buffet as the economic guru of our time.  Although he is in bed with Obama hoping to dig gold from the government trough as other execs he does hit the nail on the head.  He won’t go so far as to put the blame where it belongs, on President Obama government authoritarian policies.  The reality is as Buffet describes, the economy is in shambles and will be well beyond!

Buffet on the Economy:

Well, it’s been pretty flat.  I get figures on 70-odd businesses, a lot of them daily.  Everything that I see about the economy is that we’ve had no bounce.  The financial system was really where the crisis was last September and October, and that’s been surmounted and that’s enormously important.   But in terms of the economy coming back, it takes a while.  There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while.  In the (Berkshire Hathaway) annual report I said the economy would be in a shambles this year and probably well beyond.  I’m afraid that’s true.

The theft of Public funds by two Fascist Presidents of the United States will finally go on trial in the Supreme Court.

Last fall Congress approved and President Bush signed the law creating the $700 billion Troubled Assets Relief Program (TARP). Congress specifically said the funds could only be used for financial institutions such as banks, insurance firms and credit unions. However, TARP money was used by the Bush administration to provide a $13.4 billion bridge loan to GM and a $4 billion loan to Chrysler.

In March, Comrade President Obama told America,  government would guarantee the warranties for new cars sold by GM and Chrysler, expanding government fascist control in the name of the auto bailout. He also forced the removal of GM CEO Rick Wagoner and announced that Fiat would be purchasing Chrysler, with no legal authority and against congressional provisions.

In early June Comrade President Obama announced the federal government would be spending $30 billion on GM and taking ownership of 60 percent of the company and giving union workers a 17 percent stake in the company ahead of the secured interest of the Indiana pension fund holders.

The Indiana suit addresses this issue by raising the inequity in the deal as structured.  If the United States is a country based upon the rule of law where contracts are to be honored,  what kind of new society is Comrade President Obama leading this Country into, if by government fiat (no pun intended) it can unfairly favor the interests of the company’s unsecured stakeholders ahead of the secured stakeholders, such as the holders of Indiana pension funds?

This action puts the new National Socialist American Worker’s Party in complete control of the Auto Industry and the precedent to continue nationalizing any area of the American economy in the name of “The Party.”

The U.S. District Court ruling further states, “Plaintiffs’ arguments have even more persuasive force given that a bill, HR 7321, specifically designed to authorize the distribution of TARP funds to auto manufactures passed the United States House of Representatives.” “Passage of that bill by the House, even though not ultimately enacted, raises the question of why was such a bill necessary if the Act already authorized the distribution of TARP funds to the auto industry?” the court continued.

However, U.S. Bankruptcy Court Judge Arthur Gonzalez ruled on June 1 that Indiana did not have the standing to challenge the use of TARP funds. The court of appeals issued a ruling late Tuesday accepting the case.

The Indiana pension funds added: “The Government’s action is not authorized by any statute, including TARP, and violates the unambiguous provisions of the Emergency Economic Stabilization Act (the “EESA”) and the Constitution of the United States.”

The President’s violation of federal law ‘breathtaking’

The agenda of Comrade President Obama is quite clear, and should be a wakeup call for those liberal progressives blind to the unlimited power grab by the executive branch.  How can their liberal Marxist-fascist President pit one class of unions, the Indiana teachers, against a union who contributed to his campaign, the UAW, while a foreign corporation, Fiat, receives a financial windfall of at essentially no cost?

There is only one answer, Comrade President Obama principals lie with a new society based upon Marxist-fascist authoritarian rule, let us pray that the supreme court see’s Obama for what he is and for what he is planning to do to American society, and stop this shift of power from the people to the Dictator in Chief.

The Indiana lawsuit is significant because it is the only litigation challenging the constitutionality of this auto bailout, said Andrew Grossman, senior legal policy analyst at The Heritage Foundation.

The Obama Administration and his financial arm Bernanke and Geithner have professed to bring back the recovery to middle America by providing financial incentives for home mortgages.  This worked briefly for a few months only from the perspective of lower home interest rates, and although the rates remained low for a few months there have been still been problems for people able to qualify for new loans.  This due to the new regulatory requirements for those able to qualify and now there is a new problem.

The New Obama Federal Home Loan Program has begun to implode under its own weight of debt.  Home rates have gone up to what they were last year simply do to the government’s policy of purchasing its own debt.  The Obama financial program intends to inflate its way out of this recession but that happens to cause the dollar’s value to drop and home mortgage rates to go up.

This financial prescription for economic recovery is in direct conflict with itself and shows how inept Obama and his financial gurus are to pushing socialism on an economy that is ingrained with capitalism.  The market decides what will and what will not work financially.  The housing sector will definitely not lead America out of the economic abyss created by both Republicans and Democrats.

If anyone happens to say that Obama inherited this mess please ask them why he has signed a $1.3 trillion dollar budget with 9,000 pork barrel earmarks.   Or when Obama complains about the budget deficit he inherited of $455 billion ask them why he has allowed the projected budget deficit this year to reach a record $1.75 trillion , according to the Congressional Budget Office.  Then when an Obama fanatic says the Obama will reduce this deficit ask them how exactly doe he propose to do that, what has he proposed to cut?

Federal Reserve Chairman Bernanke may be waking up the the fact that he is not in control of the economy as he thought he was.  His efforts to bring down borrowing costs to revive the housing market and help the economy has come to a screeching stop.  Mortgage rates are rising the average 30-year fixed-mortgage rose to 5.27 from 4.7 percent as of yesterday, according to Bankrate.com.  Mortgage rates are almost back to where they were in March before the 30-year rate fell to a record and sparked a refinancing boom.

Rates are rising as President Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes and stem the rise of foreclosures. His measures also include a tax break of as much as $8,000 for first-time homebuyers that wouldn’t require repayment.  The only problem with the tax break is that it only applies for new home construction.

Bernanke has to step up the purchases of Treasuries and mortgage-backed debt with printed dollars out of thin air  that equates to the amount of new Treasury debt being dumped onto the market.  Treasury yields are rising as the U.S. government sells debt to itself and Bernanke and President Obama wonder why the mortgage rates are going up?!

The market is responding as refinance applications this week fell 19 percent to the lowest since early March, before the U.S. announced a loosening of Fannie Mae and Freddie Mac rules to allow more borrowers with little or no home equity to arrange new loans. The same problem that got America into this problem in the first place is again taking place no equity loans!

Yields on Fannie Mae and Freddie Mac mortgage bonds tumbled today after rising earlier this week. Increases this week, spurred in part by a jump in Treasury yields, at one point were as big as any since 1984, before narrowing to only the most since late January.

At the same time as the Fed is buying up the Treasury’s debt Mortgage foreclosures rose to a record 9.12 percent of U.S. home loans and house prices dropped the most on record in the first quarter, industry reports show.  The U.S. delinquency rate jumped from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent,

The Fed plans to buy as much as $1.25 trillion of mortgage- backed securities and up to $300 billion in Treasuries as part of a plan to lower rates. Minutes of the central bank’s April 28-29 meeting show some officials said the Federal Open Market Committee may yet boost asset purchases to spur a more rapid economic recovery.

As the Fed demonstrates that it is completely incapable of manipulating its way out of this crisis, market forces are contracting in the wake of a coming Tidal Wave if inflation from the Fed buying the Treasury’s debt.  This week by action

Soon Government will not be collecting sufficient taxes from constituents.  As shown by California’s Legislature government cannot cut its social programs that have created a sea of red ink on its balance sheet.  Now that prosperous times are over the liberal progressives in control of government cannot bear to cut the pork from their precious welfare and environment entitlement programs.  The California taxpayers in a liberal state cannot take any more taxation, they have proven they are mad as hell and are watching their representative’s actions for the necessary spending cuts to non-essential programs.

Liberal progressive priorities are out of touch with common sense as the California’s Governor is calling for borrowing from property tax revenue from cities and counties.  The only cuts discussed are from schools, letting prisoners out early, and cuts in police and fire.  Were governments to attack the massive inefficiency due to absurd labor contracts there may be a start to reform.  For example, state workers at prisons who are “boiler engineers” will not sweep the floor, screw in a light bulb, or do anything that is not in their job description.  If a bolt needs tightening in another department it will not be fixed by a boiler engineer, he will sit at his desk with his feet up and say “not my job!”

Comrade President Obama has ensured labor a seat at the head of the government table with a redefining of contracts where government can subjugate the law to its own power demands.  Governments process of corporate debt restructuring and recent interventions in such restructurings as Chrysler and GM is leading to market concerns that rights of senior creditors such as bondholders are being undermined by preferential treatment of junior creditors  union pension liabilities as junior lien holders are now in senior positions.

The US government is about to lose its triple A bond rating due the disastrous financial shape it has created by debt creation and California has been downgraded my Moody’s such that it cannot even get a loan without guarantees by the Federal Government.  This will do nothing to assist the Federal government’s bond rating and no matter what the Washington politicians say Moody’s analysis will be a ringing bell above the eloquent tongue flapping of Obama.  The US government is now following the State of California because of politicians that will not cut spending but rely on tax increases so that government can survive and politicians can stay in power.

The liberal progressives in power on the state and federal levels will not cut spending.  They have been paid by special interests for years to create these programs in the first place.  The lobbying to keep programs over cutting programs will be extremely intense but will not follow the rule of common sense but of special interest money. The need to find the easy way out via taxation and borrowing that has been the hallmark of government will continue until the population faced with abject tyranny revolts at the voting booth.  As California looks to pilfer revenues from Cities and Counties as Stated by Governor Schwarzenegger, so will the Federal Government steal from the States.

The CBO estimates that US public debt to GDP ratio will rise from 40% to 80%, or about $9 trillion dollars. Should long term rates increase to 5%, the resulting increase in the interest rate bill alone would be about $450 billion or 3% of GDP. This can only be offset by an increase in taxes or cutting government spending or theft of dollars collected by the Federal Government that are then returned to states via programs like Medicare and Medicaid.

To prevent an unsustainable Maddof scheme like the Federal Government is now pulling off by massive increases to the stock of public debt as a share of GDP the debt bubble will soon burst. The burden of trillions of dollars of high debt levels will soon only be financed by default, a capital levy on the wealthy, the use of inflation to wipe out the real value of money, more public debt, and an increase in taxes at all levels of society.  Although it may be possible for government to reduce spending and cut programs this is a sacred cow that cannot be slaughtered unless it is for military spending.

When ballot measures hailed by Governor Schwarzenegger as the life boat for California were being voted on where was he?  Aren’t all Captains suppose to go down with the ship?  Especially ones that navigated into severely infested waters of debt iceberg of HIS own making.  ”If the governor thought that the initiatives were going to win a smashing victory, he’d be in California right now,” said Rep. Brad Sherman (D-Sherman Oaks). Let us not forget he makes the budget and proposes it to the Legislature.  Schwarzenegger is not the “TV Tough Guy Terminator” but a “Girly Man” who has proven time and again an inability to make tough choices for California.  Forget the excuses, California revenue has not dropped but the spending has done nothing but increase and who is approving this, “The Sissy Governator.”

California voters have spoken but just as the voters spoke out against gay marriage only to have government repeal the will of the people so will there be a similar fate to this public referendum on out of balance budgets.  Schwarzenegger and his government cohorts resorted to threats to pass the failed measure by telling the electorate that police, fire, prisons and schools would be cut first.  Never once did they tout cutting the new center for the arts, or million dollar otter studies or allowing offshore drilling to increase revenues.  NO, Schwarzenegger was in Washington with his begging bowl before his messiah asking for healing California!

Although the captain of the ship was not aboard when the ship struck the voters iceberg of NO MORE DEBT, new reports said the failure was due to the complexity of the propositions.  Yet if they were so complex how is it that California voters passed Prop 1F to limit Elected Officials pay when the budget is out of wack?  No!  Californians aren’t as stupid as the elected idiots and news media think they are.

Lets look for the end run by the Sissy Governator to ask for federal funds to bail out California’s debt and the Nationalization and further liberalization of California by Obamanomics, ie federal control by mandate of state legislature by financial manipulations.  Let us look next to Vermont, New York, Massachusetts, New Jersey, et al, all liberal out of control spending states next to be nationalized by the Obama Administration.  Oh, and with money backed by Chinese dollars and newly printed US $100′s.

Californians spoke clearly, STOP SPENDING SCHWARTZNEGGER!

By Michael B. Marois and William Selway May 20 (Bloomberg) — California voters rejected a package of budget-balancing measures that Governor Arnold Schwarzenegger said were needed to keep a $15 billion deficit from widening to $21 billion. A proposal to limit lawmaker pay passed.

The budget approved in February raised $12 billion in taxes, cut $16 billion in spending and spent $8 billion of federal stimulus money. It also relied on $6 billion that would have been raised had the ballot measures won.

The three major credit rating companies, citing the magnitude of California’s deficits, reduced the grades on more than $46 billion of bonds in February and March. Now, California’s full faith and credit pledge is rated A by Standard & Poor’s and an equivalent A2 by Moody’s Investors Service, five grades below the top investment ranking. California is the lowest-rated U.S. state.

A California general obligation bond maturing in 2038, which traded for as little as 81.5 cents on the dollar on Dec. 4, went for 96.4 cents to yield 5.5 percent yesterday, according to Municipal Securities Rulemaking Board data. That compares with 5 percent for top-rated municipal general obligation bonds, as measured by a Municipal Market Advisors index.

Schwarzenegger proposed on May 14 cutting another $6 billion in spending, half from schools and colleges, to close the new gap. He said more cuts, such as releasing 19,000 illegal immigrants now held in state prisons, would be necessary with voter rejection of the ballots measures.

Schwarzenegger has also proposed that the state borrow $6 billion of two-year cash flow warrants. He said more short-term borrowing would be needed later in the year, especially if the measures were rejected.

California Treasurer Bill Lockyer petitioned U.S. Treasury Secretary Timothy Geithner to arrange for the federal government to become a standby purchaser of the short-term loans in the event of default. The state will be forced to make deeper budget cuts if the federal government doesn’t “backstop” the debt, according to Lockyer.

“If we can’t do some of this borrowing it will mean the cuts will be that much more severe — policemen, firemen will get laid off,” Lockyer told Bloomberg Television in an interview this morning. “We hope that there will be some backstop guarantee insurance from the Treasury so that we can go to market successfully at a reasonable rate.”

Lawmakers put the measures on the ballot in February as part of a compromise to close what was then a record $42 billion budget gap. Since then, the deficit re-emerged as California‘s economy, which on its own would be the world’s eighth-largest, worsened amid the national recession.

By Nicole Bullock in New York,Published: March 20 2009 02:26 – California’s credit ratings were cut to the lowest level for any state amid continued concern about its finances just one month after the passage of a budget aimed at tackling the state’s deficit.

The downgrades were made by Moody’s Investors Service and Fitch Ratings as California plans to sell $4bn in bonds next week.

Moody’s lowered California’s rating one notch to A2 from A1, “based on the economy, their finances, some uncertainty around their budget solutions and their liquidity”, said Emily Raimes, the assistant vice-president in Moody’s public finance group. The cut affects more than $60bn of debt. Fitch made a similar cut. Standard & Poor’s had already reduced California to single-A, which means all three agencies rate California with the lowest credit quality of any state.

The Obama administration is incorrect in analyzing the causes of this economic crisis. This mistaken policy response of socialism and massive debt does not attempt to solve the fundamental causes of economic meltdown and will result in policies that exacerbate any recovery.  This crisis was caused by excessive over-borrowing. Excessive leverage by financial institutions, households,  and irrational lending practices creating massive debt and excessive credit causing the current insolvency and illiquidity problems.

The Obama Administration sees this as a crisis of confidence that has led to a collapse of liquidity ignoring the fundamental problem of debt.  Although they do see the crisis of over-leverage and the collapse of liquidity and credit in financial markets confirms a need to infuse financial institutions with cash in an effort to stiffen up institutions and firms weak financial fundamentals debt is their economic answer.

Thus, the Obama Administration is telling Americans to spend and Obama is trying to reduce credit card rates for households to get them borrowing again.  The Administration believes the way out of the recession is through aggressive government debt to grow institutions and welfare programs that confidence and trust can return through this program and lead to a recovery.

However, recovery cannot be obtained by government incentive instead of providing individuals with personal incentives to create income take risk and produce for their own family’s future benefit.  The oblique view of the Administration to see government as the savior will not stop an unavoidable serious recession from turning into a real depression.

Real economic change from the current downward economic spiral depends on the resolution of the real and financial excesses that causes the economic and financial crisis in the first place. Currently, households, financial institutions and corporations are just starting to deleverage their debt.  Washington rhetoric is just that, a childish tantrum that can do nothing to help solve the excessive leverage, debt and credit crisis.  What it is doing by socializing corporations and putting the debt on government’s balance sheet is economic Disneyland.

As the private sector including households are in process of deleveraging, debt restructuring, this is causing deflation as households, businesses firms are cutting costs to survive while unemployment corporation cut backs continue.  Much more is needed than bail out money and massive government budgets  to create a false confidence to spur spending that will then somehow cause Americans to resume their high economic lifestyle overnight.

Nationalization of corporate debt is creating a public sector bubble of re-leveraging to pick up losses in the private sector. This policy solution is a rubric that makes recovery impossible by complicating private sector economics that must now  rely on new legal guidelines that are inconsistent, never been tried, impossible to change quickly, and obsolescent from the start.  This does nothing but add gasoline to the already dangerous fire of debt and solvency problems fanning flames to heretofore unknown and stratospheric heights.

The right way to resolve a problem of excessive debt to capital assets for households, business firms and corporations is to reduce the principal value of leveraged assets and create equity.   If there is too much debt and too little equity in an economy debt must be converted to equity by transitioning nonperforming assets into equity reducing the debt overhang.

The Obama Administration is increasing public debts, expanding the overall leverage of the economy instead of reducing it or providing incentives and credits to do so.  By blindly creating and increasing sovereign debt will not induce growth but extend the recession.  By government creating a new balloon of sovereign debt the proper way to grow the private economy can never occur.  Government created excessive debt and leverage to fund nonessential programs will create a drag on the economy due to the higher taxes needed to sustain the increasing sovereign debt balloon.

Today California’s tax propositions will fail at the voter booth.  California will either have to cut spending or balloon their debt further with guarantees by the federal government as a stop gap measure to warrantee the loans to California.  There are other liberal states in this exact same predicament however politicians still have not gotten the public’s message.  After today’s election the voters voice will resound loud and clear across America, “GOVERNMENT CUT PROGRAMS AND REDUCE DEBT!”

The seventeenth amendment to the constitution changed the way senators were chosen, from being selected by state legislatures, to being selected by a direct popular vote. The constitution was set up specifically to ensure that states would have direct and strong voice in the operation of the federal government.  That authority comes not from the Federal Government but from the individual expressing his rights and government control from the local, and county level.

The seventeenth amendment was established by our forefathers so a citizen’s voice would be represented in congress by a vote in the state legislature selecting two senators from each state.  These senators job would be to look after the interest of the citizens of the state instead of their own personal interests to stay in power.  Imagine a Senator not beholding to special interests, lobbyist or the need to seek perpetual funding to stay in office.  Their allegiance before the seventeenth amendment was first to the people of the state not first to the federal government or nationalized party interests and funding mechanisms.

Today of course, Senators are trying to bring home pet projects funded by federal dollars showing they are somehow responsive to the needs of the citizens who elected them to office, but dollars are not what the citizen’s need they need their liberty and freedoms protected.

Look at how with this constitutional change by the liberal progressives, the Senate has become home to representatives of special interests and lobbyist willing to subvert the rights of the common man and give authority to the Federal Government .  Today’s State Senators have proven to be completely nonresponsive under the current fiscal crisis, rubber-stamping trillion dollar-spending programs without consulting the public.  Senators are creating a debt level that can never be paid back in the life times of our families without infinite refinancing higher interest payments, while giving state allegiance to the federal government instead of the state citizens they supposedly represent.

Amendments to the US Constitution by the states require ratification by three-quarters of the state legislatures or to have the states convene a constitutional convention and vote unanimously on the changes proposed to the constitution.  There is a movement by states to convene a new state constitutional convention to stop federal takeover of the freedoms and liberty we hold so dear.

Currently the power grab by the federal government under the leadership of Comrade President Obama is causing states to be concerned about their sovereignty with bail out money offered by the federal government that then require states accepting those funds to give some elements of state control to the federal government in return.  Many states are not accepting federal program bailout funds offered, as they understand the elements of how this power grab will create future problems for state governance from outside demands put on the state by the feds due to the strings attached to accepting federal debt.

Perhaps the greatest power grab occurred by the Supreme Court in a 1942 decision Wickard vs Filburn.  This case came about because a farmer grew wheat on his own land for his family consumption.  The issue was not limited to his in state production but because he just might sell it across state lines, the federal government sought an opinion by the Supreme Court.  This was only for his family’s consumption!

This case opened the door for the federal government under that guise of what may become an interstate commerce issue providing authority for direct federal control of what was wholly within a state’s borders.

This decision allowed the federal government to exercise heretofore-unmitigated control over state sovereignty by throwing out laws affecting private property rights and governmental protections of states’ rights that had been put in place150 years prior to this decision.

Help is on the way! In a bill passed this month, the Montana Legislature  seeks to test state sovereignty, asserting that guns manufactured in Montana and sold in Montana to people who intend to keep their weapons in Montana are exempt from federal gun registration, background check and dealer-licensing rules because no state lines are crossed.

The Montana legislature seeks to reaffirm that “the regulation of intrastate commerce is vested in the states under the 9th and 10th amendments to the United States constitution, particularly if not expressly preempted by federal law. Congress has not expressly preempted state regulation of intrastate commerce pertaining to the manufacture on an intrastate basis of firearms, firearms accessories, and ammunition.”

The Tenth Amendment is part of the Bill of Rights, ratified on December 15, 1791. It states the Constitution’s principle of Federalism, by providing that powers not granted to the national government nor prohibited to the states are reserved to the states and to the people.

This will no doubt result in a legal showdown over how far the federal government’s regulatory authority extends.  Texas and Utah are also in process of passing similar laws. The federal government has argued that it has authority under the Supreme Court’s interpretation of the interstate commerce clause of the U.S. Constitution to regulate guns because they can so easily be transported across state lines.

Based upon the 1942 Wickard vs Filburn case where a farmer just may transport across state lines his product, so is the Great State of Montana ready to take back its freedom and liberty from the tyrannical clutches of Comrade President Obama’s totalitarian marxist-fascist government.