California asks the Federal Government for emergency loan

cnyexpat: California asks the Federal Government for emergency loan

The credit crisis is spreading. If you read this article you will see that for the first time ever, the State of California needs to ask the Federal Government for a $ 7 Billion loan to be able to make payments to schools, payroll, and also pay unemployment benefits. The need to borrow money is normal because cash collections from taxes are uneven relative to the time payments have to be made.

Normally, state governments and municipalities borrow money in the form of short term loans from the credit markets. But the credit markets have been shutting down, no one wants to take the risk of lending money to someone else and risk not getting paid back. The interest rates on the loans that are available are sky high. Lenders are worried that California's economy may collapse and they won't get paid back. Other states are canceling plans for infrastructure projects as they can't borrow funds.

The government bailout is desperately needed to calm down the markets.