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SDI 2008 HBR LAB

CALIFORNIA ECONOMY DA

CALIFORNIA ECONOMY DA INDEX

Contents
CALIFORNIA ECONOMY DA INDEX............................................................................1
SHELL.................................................................................................................................2
SHELL.................................................................................................................................3
UNIQUENESS EXTENSIONS...........................................................................................4
UNIQUENESS EXTENSIONS...........................................................................................5
LINK EXTENSIONS..........................................................................................................6
US ECONOMY KEY TO WORLD ECONOMY...............................................................7
INTERNAL LINK EXTENSIONS.....................................................................................8
IMPACTS – ECONOMIC COLLAPSE OUTWEIGHS WAR...........................................9
IMPACTS – LAUNDRY LIST..........................................................................................10
IMPACTS – BEARDEN....................................................................................................11

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SHELL
a) UNIQUENESS
The California and US economy are teetering on the brink of recession.
Roger Vincent June 18, 2008, (Staff writer for the Times, “THE ECONOMY; UCLA foresees no
recession; But there will be little or no growth in GDP this year or next, Anderson experts say,” lexis)
Under pressure from falling home values, high oil prices and rising unemployment, the economy
in California and the nation will perform anemically in the coming months -- but there still
won't be an actual recession, UCLA forecasters say. "I am holding on to what is now a shaky
view: no recession this year," said economist Edward Leamer, director of the quarterly UCLA
Anderson Forecast, which is being released today. The predictions, however, call for somewhat
more pain in the months ahead than previously forecast, with little improvement this year or
next.
Not good, but not a recession, which is commonly defined as two consecutive quarters of
negative growth in gross domestic product.
"In a recession, things happen quicker and nastier," said David Shulman, a senior economist at
UCLA.
Normal growth will not resume until 2010, Shulman said.

b) LINK AND INTERNAL LINK


Counterplan cost pushes California’s budget overboard, collapsing the US economy.
Reuters May 16, 2008 (James Saft, “California leads the way – to recession; INSIDE THE MARKETS,”
lexis)
'California is big enough that it is going to drag a lot of the nation down with it,'' said
Christopher Thornberg of Beacon Economics, a consulting firm in Los Angeles. ''You can't
have collapsing consumer demand in California and not expect it to have an influence.''
Thornberg sees a recession in California being more similar to the recession of the early 1990s
in severity rather than the briefer recession after the Internet boom ended. But while California
is not suffering from an industrial bust, as it did when aerospace was hit after the Berlin Wall
came down, its consumers are poorly set to weather a recession.
''People have racked up a phenomenal amount of debt, savings rates have been at zero and
the piper has to be paid,'' Thornberg said.
Vallejo, a city in Northern California, said last week that it would file for bankruptcy, prompted
by rising costs and falling tax receipts because of the housing slump.
Arnold Schwarzenegger, the governor of California, is expected to present plans for $15
billion in bonds backed by lottery revenues to help plug a state budget hole.

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SHELL
c) IMPACT
Economic collapse leads to world war three.
Walter Russell Mead August 27, 1998 (Senior Fellow for U.S. Foreign Policy at the Council on Foreign
Relations, “Financial markets threaten global peace,” lexis)
Forget suicide car bombers and Afghan fanatics. It's the financial markets, not the terrorist
training camps that pose the biggest immediate threat to world peace.
How can this be? Think about the mother of all global meltdowns: the Great Depression that
started in 1929. U.S. stocks began to collapse in October, staged a rally, then the market headed
south big time. At the bottom, the Dow Jones industrial average had lost 90 percent of its value.
Wages plummeted, thousands of banks and brokerages went bankrupt, millions of people lost their
jobs. There were similar horror stories worldwide.
But the biggest impact of the Depression on the United States -- and on world history --
wasn't money. It was blood: World War II, to be exact. The Depression brought Adolf Hitler to
power in Germany, undermined the ability of moderates to oppose Joseph Stalin's power in
Russia, and convinced the Japanese military that the country had no choice but to build an Asian
empire, even if that meant war with the United States and Britain. That's the thing about
depressions. They aren't just bad for your 401(k). Let the world economy crash far enough, and
the rules change. We stop playing ''The Price Is Right'' and start up a new round of ''Saving
Private Ryan.''

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UNIQUENESS EXTENSIONS

__) California is on the brink of bankruptcy now.


Las Vegas Review June 25, 2008 (“Wage freezes, layoffs a fact of life,” lexis)
Mr. Schumacher obviously does not know that business taxes and income taxes depend on the
income derived by businesses and individuals. If our income goes down, we pay smaller or no
taxes. Like sales and gaming taxes, if our income goes up, we pay more taxes. He also does not
seem to know that businesses generally pass tax increases on to their consumers.
I guess Mr. Schumacher really wants to cause havoc in our economy and drive Nevada into a
depression. Maybe he would like us to be on the verge of bankruptcy, like California.
He doesn't seem to care that Nevada has a relatively small population and should not be
compared with California and New York. And while he and university Chancellor Jim Rogers
lament our poor education system, has anyone noticed how the once-proud California
education system has become one of the worst?

__) California’s poor economic standing shows on its cities.


Business Wire May 30, 2008 (“From Boom to Bankrupt: Vallejo’s Chapter 9, According to
BankruptcyData.com,” lexis)
In like fashion, Vallejo has expense obligations it can not afford. According to Court
documents, its financial condition has deteriorated over the past three years. The failing
housing market, and a slowing economy, significantly decreased general fund revenues while
operational costs continually increased. One significant expense source is the City employee
salary and benefit packages. A majority of general fund revenues are dedicated each year to pay
labor costs; and the City's largest creditor is the California Public Employees Retirement System,
which is owed $135 million.
Vallejo is not alone in this crisis and is by no means the only one to be hit by the housing
market crash and California's struggling economy. Adverse economic conditions have directly
impacted the City's primary revenue sources: property taxes, sales taxes, assessments and fees.
These combined economic conditions have industry pundits wondering if Vallejo's titanic
bankruptcy is the tip of the Chapter 9 iceberg.

__) California is in a budget crisis and on the verge of bankruptcy.


States News Service April 28, 2008 (“GOVERNOR SCHWARZENEGGER PARTICIPATES IN
BUDGET REFORM DISCUSSION IN GARDEN GROVE,” lexis)
And then we have a budget problem, because our budget system itself in California doesn't
work. And what I'm talking about is, when you look back at the history, you always saw that in
California that whenever the economy slows down we have a budget crisis, we run out of
money. Just recently, in 2003, we were almost in a state of bankruptcy in the state of California
because our economy slowed down and we didn't have enough money.
So you would think that Sacramento eventually would learn, just like you would learn when
you see an intersection and you see people crashing and having accidents, you say let's put up a
traffic light. You do something about it. Well, in California, Sacramento has never done
anything about that, so that whenever we have a slowdown in the economy we run out of
money.

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UNIQUENESS EXTENSIONS

__) California’s economy is slowing and is on the verge of bankruptcy.


Sacramento Bee May 25, 2008 (Claudia Buck, “An Estate plan may be needed,” lexis)
A: California tax-free municipal bonds have the perception of being safe and secure. But
the slowing economy can have an impact on the viability of such bonds. Recently, for
instance, the city of Vallejo voted to seek bankruptcy protection, partly because of a slumping
real estate market. This could mean the city's municipal bonds might not yield their full value.

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LINK EXTENSIONS

__) Alternative energy is expensive and would cause California’s economy to


collapse.
The Republican May 28, 2008 (“Tax incentives for a greener future,” lexis)
It's a hopeful vision. But, just as money doesn't grow on trees, green industries can't become
growth industries without serious investment.
That's why we're pleased that a wide-ranging tax package approved last week by the U.S. House
of Representatives included tax incentives for the research, development and marketing of
alternative sources of energy. The provision, authored by U.S. Rep. Richard E. Neal, D-
Springfield, who serves on the House Ways and Means Committee, extends by six years the tax
investment credit for solar energy, as well as a three-year extension for a tax credit for energy
derived from biomass, geothermal, hydropower, landfill gas and solid waste. It also includes tax
breaks for the production of renewable fuels and provides consumer tax credits for plug-in hybrid
electric vehicles.
"You are not going to get someone who will invest in wind power only to discover that the tax
credit is going to be gone," Neal said before the 263-160 vote. As investors "you need to be able to
look down the road at the tax incentives," he said.
The tax incentives could help Massachusetts in its push to become a leader in the clean technology
sector. Such incentives are needed because alternative energy sources are expensive to bring to
market. But the payoff - beyond pumping up the economy - could be even greater if it helped
put us on the road to reducing our dependence on foreign oil.
Going green is a worthy - and strategically important - goal. Tax incentives for alternative energy
enterprises deserve support. When the provision goes to the Senate, we hope it sees it that way too.

__) Alternative energy is expensive and would push California over the edge.
Chattanooga Times Free Press May 17, 2008 (“A Vote To Keep Your Gas Prices High,” lexis)
Adding oil production in Alaska would by no means end our need for foreign oil. But boosting
domestic supplies would give us a huge bargaining chip with which to press for lower prices for
foreign oil. Existing oil production in Alaska -- developed when technology was far less advanced
than it is today -- has not harmed that state's flora and fauna. Blocking new development on the
basis of unfounded fears of danger to wildlife has become a means to push an environmental
agenda that forsakes cost-effective traditional energy sources in favor of expensive,
inadequate and unproven alternative energy. Sen. Lisa Murkowski, R-Alaska, warned her
colleagues about what they are doing to consumers and declared: "Increasing our production is
part of a comprehensive energy policy. We cannot have an energy policy that is based on 'No.' "

__) The price of alternative energy would push California over the edge.
Christian Science Monitor January 23, 2008 (Yereth Rosen Correspondent to CSM, “In oil-rich
Alaska, an energy crunch,” lexis)
Geothermal, wind, hydro, and tidal power may hold the most promise in a state dotted with volcanoes, scoured by stiff breezes, and surrounded by water. Alaska's
Division of Oil and Gas is soliciting bids for leases to develop geothermal energy beneath Mount Spurr, a volcano on the Anchorage skyline. Fairbanks's Chena Hot
Springs Resort is renown for putting the underground heat that warms its pools to a variety of other uses. A handful of native villages have erected wind turbines,
and Anchorage's electricity cooperative has wind-power plans. Solar energy - seemingly a long shot because of daylight-deprived winters - is getting a look, with
small-scale projects face
panels installed in some communities. Even fish oil has fueled generators at Denali National Park. Such
economic hurdles, however. "Alternative energy is very expensive capital-wise," says Kohler,
whose cooperative includes wind-powered villages. Federal grants have funded villages'
alternative-energy projects, but prospects are dim for future aid, she says.

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US ECONOMY KEY TO WORLD ECONOMY

__) If the US economy collapses, the world economy will be soon to follow.
The Austrailian June 14, 2006 (David Uren, Economics Corresponant, “US Defecit ‘risks world
recession,’” lexis)
THE head of the International Monetary Fund has warned that the US current account deficit
risks plunging the world economy into recession.
Distortions in the oil market and fears of inflation are also threats to world economic growth,
according to IMF boss Rodrigo de Rato.
Although Australia would not escape the effect of a downturn, he said he believed the Howard
Government's success in paying off its own debt gave it ''a very big cushion'' in managing a world
recession.
Addressing the National Press Club yesterday, Mr de Rato said the gathering threats contrasted with the
rapid, and increasingly broadly based, growth of the world economy, which was expected to accelerate
5 per cent this year.
''Should we describe the global economy as being as good as it gets, or too good to be true?'' he asked.
Mr de Rato described the losses on markets over recent weeks as ''a fairly modest correction of previous
increases in asset prices''. But he warned that investors were becoming increasingly risk averse.
''In the face of rising inflationary expectations and concerns that higher interest rates may
choke off growth, the balancing act that central banks around the world must undertake has
become more difficult.''
The market fall yesterday was sparked by fears that the US Federal Reserve Bank will raise rates
at its meeting at the end of this month.
Mr de Rato said Australia should aim to get its own deficit down from its present level of 6 per cent of
GDP to between 4 and 4.5. But he stressed that the IMF did not regard Australia's deficit as a threat to
its economic health.
''Australia's external deficit reflects high investment, rather than inadequate domestic saving, and
investment is especially strong in the resources sector -- which boosts prospects for future exports,'' he
said.
Australia's deficit did not need any government policy response but would look after itself as the surge
in business investment levelled off.
''A correction of your current account deficit to a more sustainable path should not create big changes in
economic circumstances.''
However, the US deficit was being used to finance consumption and this would not be supported
by other nations indefinitely. ''The risk is that if nothing is done, imbalances will not be reduced
gradually, but suddenly, and in a disruptive way.''
If investors suddenly became unwilling to hold US financial assets, the US dollar would
plummet and rates would rise, causing global financial turmoil and a recession. ''For the
world, for the region and for this country, this is a problem that needs to be addressed.''

__) The US Dollar has an impact on prices worldwide.


The Morning Star June 19, 2008 (“World – China blames dollar for economic woes,” lexis)
China's top banker blamed the falling US dollar for driving up oil and other commodity
prices, stoking inflation and undermining development in poor countries, at a meeting in
Annapolis on Tuesday. Speaking after talks with US Federal Reserve chairman Ben Bernanke and
Treasury chief Henry Paulson, People's Bank of China governor Zhou Xiao Chuan said that rocketing
commodity prices were putting undue pressure on the Chinese currency and driving up inflation in
China. "Many developing countries are already feeling the pinch," he observed. The Bush
administration wants the Chinese to open their financial system to foreign banks and investment
houses. But that effort met strong resistance from China, in light of the billions of dollars in losses
suffered by US financial giants in the credit crisis that erupted last August. Mr Zhou said: "In the
past, in the dialogue or discussions between China, the biggest developing country, and the
United States, the most advanced economy in the world, China always hoped to draw
experience from the US to guide its own development.

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INTERNAL LINK EXTENSIONS

__) The Terminator has the power to destroy the world.


Washington Times June 15, 2007( Wesley Pruden, “The Terminator gets a life,” lexis)
But nothing recedes like success, particularly in Hollywood, and soon the Terminator's opinion-
poll approval sank to the neighborhood of 30 percent - a neighborhood Harry Reid might envy, but
nothing worth amending the Constitution for. The Terminator decided to become a Kennedy. If
he couldn't be president of the United States he would become the president of California,
with an economy already bigger than Canada, as Californians will tell you (and tell you and tell
you). "The power influence we have is the equivalent of a nation, or even a continent," he told
an audience the other day in British Columbia. He didn't identify the continent, but it was
something bigger than Antarctica, presumably. Analyze that, Uncle Teddy.

__) California is the testing ground for the future of America’s economy.
Reuters May 16, 2008 (James Saft, “California leads the way – to recession; INSIDE THE MARKETS,”
lexis)
One particular area of concern is the way in which California's faltering economy and rising
unemployment interact with falling home values to prompt greater rates of mortgage
defaults. This could hit banks with exposure to California in their mortgage loan portfolios, not to
mention Fannie Mae and Freddie Mac.
''There is a very strong relationship between delinquencies and the coupling of job losses with
falling home prices,'' Ajay Rajadhyaksha and Derek Chen of Barclays Capital in New York wrote
in a note to clients.
For example, in the areas of Modesto, Stockton and Merced, the unemployment rates are above 10
percent while more than 60 percent of loans are close to being underwater, or larger than the value
of the house. Serious delinquencies in those areas are above 18 percent, while the national average
is 3.6 percent, according to Barclays.
But beyond the implications for banks, California can really be seen as the testing ground for
what the U.S. consumer looks like in coming years, and how he or she manages. If, somehow,
the move from spending to savings can be done gradually, the downturn in the United States
may be gentle.
If it happens quickly, watch out.

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IMPACTS – ECONOMIC COLLAPSE OUTWEIGHS WAR

__) Economic Collapse causes more deaths than war.


Charles Ellwood 2003 (Univeristy of Missouri, “Sociology and Modern Social Problems,” lexis)
As already implied, then, economic depression exercise a very considerable influence upon
death rate, particularly when economic depression causes very high prices for the necessities
of life and even widespread scarcity of food. This cause produces far more deaths in modern
nations than war. The doubling of the price of bread in any civilized country would be a far
greater calamity than a great war. While modern civilized peoples fear famine but little, there
are many classes in the great industrial natiosn that live upon such a narrow margin of existence
that the slightest increase in the cost of the necessities of life means practically the same as a
famine to these classes. Statistics, therefore, of all modern countries, and particularly of all great
cities, show an enormous increase in sickness and death among the poorer classes in times of
economic depression.

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IMPACTS – LAUNDRY LIST

__) Global recession causes famine, war, anarchy and unemployment.


Bernardo V Lopez September 10, 1998 (“Global recession phase two: Catastrophic,” page 10, lexis)
What would it be like if global recession becomes full bloom? The results will be catastrophic.
Certainly, global recession will spawn wars of all kinds. Ethnic wars can easily escalate in the
grapple for dwindling food stocks as in India-Pakistan-Afghanistan, Yugoslavia, Ethiopia-Eritrea,
Indonesia. Regional conflicts in key flashpoints can easily erupt such as in the Middle East, Korea,
and Taiwan. In the Philippines, as in some Latin American countries, splintered insurgency forces
may take advantage of the economic drought to regroup and reemerge in the countryside.
Unemployment worldwide will be in the billions. Famine can be triggered in key Third World
nations with India, North Korea, Ethiopia and other African countries as first candidates. Food
riots and the breakdown of law and order are possibilities.

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IMPACTS – BEARDEN
__) Economic collapse causes extinction
Tom Bearden June 24, 2000 (LTC U.S. Army now retired, "The Unnecessary Energy
Crisis: How to Solve it Quickly,
http://www.freerepublic.com/forum/a3aaf97f22e23.htm)
History bears out that desperate nations take desperate actions. Prior to the final economic
collapse, the stress on nations will have increased the intensity and number of their
conflicts, to the point where the arsenals of weapons of mass destruction (WMD) now
possessed by some 25 nations, are almost certain to be released. As an example,
suppose a starving North Korea launches nuclear weapons upon Japan and South Korea,
including U.S. forces there, in a spasmodic suicidal response. Or suppose a
desperate China-whose long range nuclear missiles (some) can reach the United
States-attacks Taiwan. In addition to immediate responses, the mutual treaties involved
in such scenarios will quickly draw other nations into the conflict, escalating it significantly.
Strategic nuclear studies have shown for decades that, under such extreme
stress conditions, once a few nukes are launched, adversaries and
potential adversaries are then compelled to launch on perception of
preparations by one's adversary. The real legacy of the MAD concept is
this side of the MAD coin that is almost never discussed. Without effective
defense, the only chance a nation has to survive at all is to launch immediate
full-bore preemptive strikes and try to take out its perceived foes as rapidly
and massively as possible. As the studies showed, rapid escalation to full WMD
exchange occurs. Today, a great percent of the WMD arsenals that will be
unleashed, are already on site within the United States itself. The resulting great
Armageddon will destroy civilization as we know it, and perhaps most of the biosphere, at
least for many decades.

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