Will California Fall Into 'The Black Hole'?

View Comments (
)
|
Email
|
Print

    NEWSLETTERS

    TK

    California only has a short amount of time to fix its troubled economy, with an $84 billion budget and $24 billion deficit, or else it will deteriorate to the point of no return, Sean Egan, founding partner and president of Egan-Jones Rating Company, told CNBC on Monday.

    "They have a little bit of time and they better use it quickly and properly or else they're going to enter what we call 'the black hole'," Egan said.

    Egan's firm is noted by many as one of the few rating agencies that called the credit crisis.

    'The black hole' refers to a credit status that has increasing difficulty accessing the market on an independent basis on reasonable terms and therefore continues to worsen, he added.

    But, Egan quickly noted that California has shown some improvement, especially in terms of unemployment and the tech sector.

    "If California shows some tangible progress in cutting their deficit and hopefully addressing the pension plan over the next year-and-a-half, they'll be okay," he said.

    Europe's sovereign debt crisis, on the other hand, has already hit 'the black hole.'

    "The crisis is already there basically. In the case of Greece, it's unsustainable in the same way it is with Ireland," Egan said.

    "Ireland has tax revenues of about 30 billion euros—all in all, they have about 300 billion euros of obligations of total indebtedness," he said.

    In addition, with Ireland borrowing at interest rates of 8 percent or higher, it just doesn't work and it's just a matter of time before it breaks down, Egan went on to say.

    "It depends on what's happening with Germany and France, whether they are going to support the periphery countries and on what terms," he added.