hat tip  Federal Reserve Bank of San Francisco

For the first time since the Great Depression (with a brief exception in 1992)  California, state finance officials will begin issuing IOUs today to meet its $24-billion budget shortfall.These will go to local governments, vendors, taxpayers and college students receiving state financial aid. State workers will face more unpaid leave days and Counties that administer social services also would not get paid, nor would taxpayers who are still expecting refunds.

Were California an independent nation it's economy would rank in the top ten globally and now it is bankrupt, and it is not the only US state economy in deep trouble. It's economy accounts for 12 percent of US domestic product and has the largest retail consumption in the country.

As the poster child for Reagonomics, state fiscal policies that kept real estate taxes at rock bottom, housing prices, housing prices zoomed during the recent bubble. Now that the economy has collapsed, capital gains and non-property state taxes have plunged taking creating the present massive deficit. While the federal government can borrow to meet a deficit, the California constitution demands that the budget be balanced each year.

And California is not the only state in trouble. The Los Angeles Times has an informative article on the general situation facing states across the nation, States brace for shutdowns.

Reporting from Indianapolis and Denver -- The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War.

But on Monday, as lawmakers raced to hammer out an agreement over school funding, state agencies began preparing 31,000 workers to be temporarily out of a job. Republican Gov. Mitch Daniels has warned residents that most of the state's services -- including its parks, the Bureau of Motor Vehicles and state-regulated casinos -- would be shuttered unless a budget is passed today.

... snip ...Indiana is one of five states -- along with Arizona, California, Mississippi and Pennsylvania -- bracing for possible shutdowns this week as time runs out for lawmakers to close billion-dollar gaps in their fiscal 2010 budgets.

Of the 46 states whose fiscal year ends today, 32 did not have budgets passed and approved by their governors as of Monday afternoon, according to the National Conference of State Legislatures.

The "green shoots" of economic recovery appear to be dying on the vine!