California, they say, is the American bellwether, the sign of things to come. Let’s hope Adam Paul is wrong about that. Writing at TCS Daily, the AEI researcher notes:

California is both the largest state economy, accounting for almost 13 percent of US GDP, and one of the most financially mismanaged. The state faces a $24 billion budget deficit. Yet the state legislature and Governor Schwarzenegger have been unable to agree on a budget. Thus the state begins its fiscal year with no cash on hand and must begin issuing IOUS. In a release, California’s Controller, John Chiang, who would issues IOUs, said “”Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression.”
The need to issue short-term debt could hardly come at a worse time. The large budget deficits will likely require cutting spending and tax increases, a situation that an LA Times interactive budget planner makes clear will involve difficult choices. Standard and Poor’s cut the state’s credit score in February, giving it the lowest rating of any state, which could make creditors less likely to accept promises rather than cash. The LA Times reported on Wednesday that only one financial institution, Golden 1 Credit Union, has publicily discussed plans to accept warrants; a spokesperson for the Controller’s Office explained that no institution has formally agreed to honor the warrants.

And what does that suggest for the United States as a whole?

Even after the spike in spending to solve the current crisis passes, Obama’s first budget predicts a ratio of federal spending to GDP not seen since WWII. Standard & Poor’s, the same agency that downgraded California’s debt, has said that the national financial outlook could force it to remove the much-prized AAA-rating from US government debt by 2017, a move that will make it more expense for the government to borrow. California has soon that last-minute fixes are susceptible to failure; the national government should begin seriously addressing its finances now, while there’s still some sunlight left.

Read the whole thing — read it and weep.