Poverty Soars in California

In September the state of California hit a new high in food stamp benefits, crossing the 6 billion dollar mark on an annualized basis. Over the past year in California alone the total number recipients of the federal SNAP program (supplemental nutritional assistance program) rose by 16.3%. In many of the big counties of California however, food stamp usage rose even faster. As previous readers of this blog understand, it’s useful to look at the car dependent regions of southern California as they are emblematic of the state’s post peak-oil, economic breakdown. After all, the food stamp program is really a food and energy program–which frees up household cash for gasoline. In San Bernardino County, for example, with its population of two million the number of SNAP recipients has now crossed the 300,000 level. Yes, a full 15% of that county is now on food stamps. But the growth rate in usage is even faster now at 22.7% since last year and has showed no sign of slowing down. | see: San Bernardino County SNAP Users vs the Price of Oil 2004-2010.

The State of California is running hard now to take as much federal assistance for which it qualifies. In addition to food stamp benefits now annualized at six billion dollars, the state continues to borrow funds from Washington to pay its own portion of unemployment benefits. That particular debt is now reaching ten billion dollars. Meanwhile, as evidenced by Sacramento’s trouble over the past two weeks in new issuance of state bonds (which had to be cut back in the face of a buyer’s strike), Sacramento instead pulled the rip-cord on Build America Bonds–yet another federally guaranteed method of borrowing. Indeed, The Golden State has used all manner of accounting tricks and fiscal year liability-shuffling to hobble its way through the past 3 years. Nevertheless, no matter how much the Budget is pounded lower the growth in revenues has not yet arrived. This is why the incoming Governor, Jerry Brown, will face the exact same problems this coming fiscal year that triggered fighting (and IOUs) between Schwarzenegger and the legislature previously. | see: State of California Enacted Budget FY2000 – FY2010.

The pro-cyclical nature of California’s budget, which peaked at 146.5 billion right at the intersection of the housing bubble’s top and the crushing price of oil, suggests that a nasty reversion has a long way to go. Eventually debt service will also begin to overtake Sacramento’s ability to borrow. Accordingly, it would make sense that the state budget will inevitably find its way back to the 100 billion dollar level as people and businesses leave the state. Also, while US exports are recovering very strongly and California is a powerful exporter, this will not be enough to rescue California’s economy which is still largely pegged to previous credit-bubble price levels. High priced homes, vast automobile and highway architecture, sunk-cost decision making in government and services–all these artifacts of the excess capital economy are now burdens in the shrinking economy. As is so often the case, through backward revisions and spin, the state last week reported a “gain” in job growth for October. But the unadulterated view, the total number of California employed, was flat again on the month, and remains at levels last seen a decade ago. What the State reported was nothing but noise. | see: California Employment in Millions 2000-2010.

At best, unfolding now in the US economy is a recovery largely tied to exports that’s creating some moderate new job growth,  but at much lower wage levels. The United States, like the rest of the OECD, is now succumbing to the global wage deflation that was masked by last decade’s credit bubble. As a result, and on many measures, poverty is soaring in America and in California especially as increased food and energy costs collide with new, lower payscales. Worst of all however is that the meager public assistance that millions of Americans now collect–the billions in food stamps and unemployment checks–are no match for rising prices of gasoline, bread, milk, coffee, sugar, and meat. Indeed it is not merely the unpleasant fact of The American Dole in all its breadth, but, that these coupons are set to decline in value. While congress will no doubt debate these billions and discuss federal obligations in static terms, what’s now set in motion is the loss of purchasing power of government benefits. And that may be the surprise that the political complex doesn’t see coming. By combining reflationary quantitative easing and a failure to reform the financial system, in an era of higher commodity prices and deflating wages, the United States is not building an economy so much as a poverty machine.