California is in deep financial trouble. The state's massive economic engine is running on empty as it struggles under the weight of recession. In February, the state took steps to close a $42.5 billion dollar budget gap but, just a few months later, that gap is $21 billion larger.

Arnie's Trying
The governor is struggling to come up with the cash, but he's not having much luck. Voters rejected five of the six recent budget initiatives, including plans to limit state spending, sell bonds backed by lottery proceeds and reallocate tobacco tax revenues away from funding children's health. They did, however, pass legislation to stop lawmakers from giving themselves a raise if the state is running a deficit.

Now the governor is looking to sell off state assets to raise some cash. Anybody want to buy a stadium or a waterfront prison? He's also talking about slashing 5,000 state jobs and cutting funding for education. Of course, California isn't the only state feeling the pinch. Arizona is facing a 29.8% deficit, and Nevada is sitting at the top of the list with a 30% deficit. Perhaps their new slogan should be "Come to Vegas, we need the money!"

Bankruptcy On the Horizon?
So the big question is "Will California go bust?" The short answer is "No." The U.S. government has bailed out insurance companies, banks, automakers and just about every other organization that has been laid low by poor management and lavish spending. If companies that sell insurance policies and cars nobody wants to buy are too big to fail, the state with the biggest budget in the nation certainly fits into that category too. If California's governor can't stop the spending and California's taxpayers (more than 10% of whom are unemployed) won't fork over any more money, the U.S. taxpayer will add a nearly-bankrupt state to its portfolio of damaged goods.

How did America's strong economy tumble so quickly? Find out by reading The Fall Of The Market In The Fall Of 2008 .

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