The economy matters for private equity

I have been following Arnold on Twitter. You know, Arnold, ex-Terminator and now governor of California. He has been sharing his budget pain and what he is trying to negotiate.
California accounts for 10% of the U.S. economy. It's state budget is about $125 billion and the deficit is about $25 billion. By law, California must balance its budget each year and the fiscal year ends June 30. Back in February, the Democrat-controlled legislature could not agree with Republican Governor Arnold Schwarzenegger on spending cuts, but it did agree to put a series of tax increases and borrowing schemes before the voters in a referendum. On May 19, all were defeated. California treasurer Bill Lockyer appealed to Washington for access to bank bailout funds, but he was turned down. He has since warned that the state only has enough cash to meet payrolls until mid-summer. We are all watching.
California matters because of its sheer size on the U.S. economy, and because 49 other governors are watching to see how Washington reacts to its budget crises. State governments are contemplating layoffs, program cuts, tax hikes, facility closures and other such measures all of which will cut in U.S. employment and consumer spending in the third quarter. Over the summer we will learn how these issues play out.