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Cali's debt worries as leading indicator

It's often said that California leads the nation in all manner of cultural, political, and economic trends. That's partly why this recent S&P downgrade of California's debt ratings seems so worrisome.

From Reuters, "California debt rating cut as cash crunch looms":

"California's main debt rating was cut on Wednesday by Standard & Poor's, which said the government of the most populous U.S. state could nearly run out of cash in March -- and another rating cut might follow
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The state government's budget gap of nearly $20 billion over the next year and a half leaves it in a precarious situation, requiring tax increases or spending cuts, either of which may slow economic recovery, the agency said in a statement.

"If economic or revenue trends substantially falter, we could lower the state rating during the next six to 12 months," S&P said after cutting the rating on $63.9 billion of California's general obligation debt one notch to A- from A.

The new level is four notches above "junk" status, a level at which many investors refuse to buy debt.
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Do Cali's debt problems and poor finances hint at trouble for other US states? We'll have more on that issue tomorrow, with a spate of new research and commentary to help us along. See you then.

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