Today I hear a rumble. I see everything starting to shift. I think there is an earthquake coming.

Words that should scare you…

As of July 2009, California’s budget shortfall was 49.3% of its general funds. States have considered drastic options to fill such gaps.

“I looked as hard as I could at how states could declare bankruptcy,” said Michael Genest, director of the California Department of Finance who is stepping down at the end of the year. “I literally looked at the federal constitution to see if there was a way for states to return to territory status.”

From later on in the same article….

Mr. Genest estimated that, eventually, 40% of the state’s budget would go to the state Medicaid program, 40% to education, 10% to debt service and 6% to retiree medical services and pension—leaving little left for anything else, such as the state’s corrections system.

In other words, California is going to choose hand outs over maintaining public order. The lowering of crime rates over the last twenty years was achieved by throwing lots and lots of people in jail. We are going to see violent crime rates climb as states decided that they can not afford to keep people in jails.

But it is not just California…..

The real talking was done Monday, when Mr. Paterson was at his articulate, compelling best, explaining the budget crisis in terms even someone otherwise oblivious to deadlines and consequences and seemingly any pressure to confront them might still understand.

“Unless immediate action is taken, we will have challenges to our state’s finances and to our cash flow in four and a half weeks,” the governor said.

Translation: New York State is not going to have enough money to pay all of its bills in a month.

Not a surprise when you consider this…..

New York spends $2,283 per capita on Medicaid, far more than any other state and twice the national average, according to statistics compiled by the state budget division. Second is Rhode Island, which spends $1,659. The state also spends $14,884 per pupil on school aid, more than any other state and well above the national average of $9,138.

But of course, it is not just America that is facing these kinds of problems….

Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.

Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.

This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.