Aug 1, 2024
Known for its vibrant culture, diverse landscapes, and significant economic influence, California stands as a global hub of innovation and entertainment. However, Rich Dad Poor Dad author Robert Kiyosaki harbors a bleak outlook for the state's future.
“The problem is California is going broke,” he stated bluntly in a post on X. “California will begin raising taxes and cutting subsidies to the poor, to prisons, environmental problems, and teachers unions. That means crime will spread as police will be cut.”
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Kiyosaki’s concerns echo beyond the state borders, emphasizing the Golden State’s role as a bellwether state: “What happens in California happens to the rest of the U.S.”
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He concludes his post with a provocative thought, questioning whether it's time for residents to consider relocating.
“Is it time for you to move? I moved,” he wrote.
Budget deficit
California’s fiscal challenges have been mounting.
In December 2023, the Legislative Analyst’s Office reported that the state faced a “serious budget deficit” due to a “severe revenue decline” in 2022-23. The report also pointed out that heightened borrowing costs and reduced investments had slowed down the state’s economy.
In response to these challenges, California's government recently passed a budget for 2024-25 that aims to maintain fiscal stability and supports core programs without resorting to deep program cuts.
The budget addresses a $46.8 billion shortfall with a balanced package of solutions, including $16 billion in spending reductions.
Specific budget cuts include a $750 million reduction spread over three years to the California Department of Corrections and Rehabilitation. Healthcare workforce programs faced a cut of $746.1 million, and affordable housing initiatives saw reductions amounting to $1.1 billion.
Note, that having a budget deficit isn't unique to state governments; it's also a national issue. In fiscal year 2024, the U.S. federal government has incurred a deficit, so far spending $1.27 trillion more than its revenue collections.
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5th largest economy in the world
Despite facing fiscal hurdles, California boasts a massive economy. It’s not only the largest in the U.S. by GDP but also ranks among the largest in the world.
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“California is the 5th largest economy in the world for the seventh consecutive year, with a nominal GDP of nearly $3.9 trillion in 2023 and a growth rate of 6.1% since the year prior,” Governor Gavin Newsom’s office announced earlier this year, citing data from the U.S. Bureau of Economic Analysis.
Newsom commented that his state “continues to punch above its weight, overperforming all but a handful of the largest countries in the world.”
However, critics have noted that the state still grapples with significant challenges, such as stubbornly high unemployment. According to the Bureau of Labor Statistics, California had an unemployment rate of 5.2% in June 2024 — tied for the second highest in the U.S.
Compounding the issue is the state’s high cost of living. Housing prices, in particular, have skyrocketed, making affordability a critical concern for many Californians.
According to data from real estate brokerage Redfin, the median sales price of homes in California escalated to $856,700 in June 2024, marking a 7.6% increase from the previous year. This figure starkly contrasts with the national median home sale price of $442,451, underscoring the affordability crisis many Californians face.
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Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
