Thread: Texas Budget Mess Now as Bad as California's

Monday, July 19, 2010

Hugh Hendry Wants to Short Obama; UK Home Prices to Crash; Mystery Trader Corners the Cocoa Market; China Passes US as World's Largest Energy Consumer

There has been a lot of interesting news over the last few of days so let's do a "quick hits" roundup.

Cornering the Cocoa Market

The Telegraph reports Mystery trader buys all Europe's cocoa http://www.telegraph.co.uk/finance/mark ... cocoa.html

Even Willy Wonka might struggle to use this much chocolate. Yesterday, somebody bought 241,000 tonnes of cocoa beans. The purchase was enough to move the entire global cocoa market, sending the price to the highest level since 1977, and triggering rumours and intrigue in the City.

It is unclear which person, or group of traders, was behind the deal, but it was the largest single cocoa trade for 14 years. The purchase was enough to move the entire global cocoa market, sending the price to the highest level since 1977, and triggering rumours and intrigue in the City.

Analysts said it was very unlikely that a chocolate company, such as Nestle or Kraft, or even their suppliers, would buy such a huge order in one go and that is was probable that one or a number of speculators, possibly hedge funds, had attempted to corner the market. By doing this, they would have control of the entire supply in Europe, forcing the price yet higher.

Eugen Weinberg, an analyst with Commerzbank, said: “For one buyer it would likely be a little bit too large. It would be a crazy number. That said, if you’re cornering the market ...â€

Texas Budget Mess Now as Bad as California's

by Dave Mann
Thursday, July 08, 2010

It’s come to this: The Texas budget outlook has become so bleak that we’re comparing rather favorably to the one state where balanced budgeting goes to die.

People, our budget deficit is now as bad as California’s.

Yes, the over-spending, over-regulated capital of hippiedom now has a state fiscal outlook on par with the Lone Star State.

That fact may not sit well with some people—especially in the governor’s office, which loves to bash California and never misses an opportunity to point out how Texas’ low-tax, business-friendly model has led to a more robust economy and sound state finances. When California faced a $60 billion deficit last year—a shortfall that was bigger than the entire budget of most states—you could almost hear the chortling from the Texas governor’s office. It seemed a handy example of what happens when you put big-spending liberals in charge.

It wasn’t that simple, though. The causes of California’s problems—and Texas’ lack thereof—were varied and complex. And now the states’ budget deficits are looking very similar.

Texas: $18 billion shortfall (estimated) or about 20 percent of state spending.

California: $19.1 billion shortfall (official estimate) or about 20 percent of state spending.

The numbers match up pretty neatly.

A couple of caveats: Texas—as you probably know—budgets in two-year cycles. If the budget gap does turn out to be $18 billion (and we won’t have an official number until early next year), that would represent about 20 percent of the $87 billion in state funds that Texas allocated for 2010-2011.

California budgets one year at time. But the state spends about double what Texas does. So a $19.1 billion budget gap represents about 20 percent of the roughly $83 billion California will spend this year from its general fund.

You can read a breakdown of California’s proposed budget for next year here.

(Another caveat: I found several different figures for California’s state spending (not counting federal funds). The governor’s office budget proposal seems to show $123 billion in state spending. But the Wall Street Journal and Los Angeles Times both reported about $83 billion, so I’m going with that number.)

It’s also worth noting that even though Texas’ budget deficit is very similar to California’s, the Lone Star State is still in a better fiscal position. Texas has better credit ratings and nearly $9 billion banked in the Rainy Day Fund. We also haven’t yet sliced our budget by about a quarter, as California did last year. (And California is losing $52 million a day because state leaders missed their deadline to pass a budget and still can’t agree.)

But if our budget deficits persist, we could very well end up in the same position.

The days when Texas leaders could mock California—or at least its budget mess—appear to be over.

There sure have been a lot of comparisons in the media of Texas to California in the past couple of years. What gives?