California Governor Arnold Schwarzenegger has warned that the state may need a whopping $7 billion loan from the federal government within the next few weeks.

California is the most populous state of the country and the sixth-largest economy of the globe. However the state is on the verge of running out of cash necessary to fund day-to-day government operations. This is because like other major states, it has been locked out of the bond market due to a global credit crunch is thus unable to access the short-term loans it generally relies upon to remain solvent. State officials have warned that if administration remains unable to access the cash, payment to schools and other government departments could be suspended and state employees might even lose their jobs.

Finance experts from California say that while it is customary for the state to take out a multi-billion loan at the start of the year to fill its short-term needs, the arrival of sales tax receipts after Christmas and income-tax receipts at spring sees the rest of the year through. However this time the magnitude of emergency loan being sought by the state is unheard-off in recent history with the only precedent being New York City which received a loan from the federal government in 1975 to avoid bankruptcy.