BERKELEY, Calif. (MarketWatch) -- Various economic reports have come and gone over the past few months, but the worst so far, at least for California, is the latest UCLA Anderson Forecast. It painted a grim picture for the Golden State, with unemployment going above 12% and lingering in the double digits until 2012.

The Anderson report, which comes out quarterly, pretty much says the state is in a tailspin -- something we've actually known all along. Read the full report.

Only the technology sector is likely to grow and serve as the foundation of California's overall recovery, according to the report's authors. Most of the great high-tech companies in the United States are scattered around Palo Alto, such as Apple Inc. AAPL, +1.50% in Cupertino; Oracle Corp. ORCL, +0.38% in Redwood Shores; and Intel Corp. INTC, +1.15% in Santa Clara. Hewlett-Packard Co. HPQ, +0.37% is in Palo Alto itself.

“ The University of California at Berkeley has one of the greatest engineering departments in the world. Now name one high-tech company in Berkeley. ”

When you include parts of Silicon Valley stretching from San Francisco down to Los Gatos and back up through Milpitas, there are literally thousands of companies, big and small, involved in high-tech development and manufacturing.

There even are pockets of similar tech-related companies throughout California in somewhat remote spots, such as Carlsbad.

The state is awash in technology.

But will the all-important tech firms abandon the state if the situation continues to deteriorate? This should be a major concern.

I was alarmed visiting the once-bustling 4th Street corridor in Berkeley, where the largest restaurant in the area was shuttered, as were numerous boutiques and small shops. This has driven all the stores to adopt shorter hours, so by 6 p.m. on weekdays it's a ghost town.

Except for the University of California itself, the city of Berkeley seems as if it's decaying. I'd advise a drive along University Avenue from the freeway up to the campus. I've been on dirt roads in Mexico that are in better condition than much of University Avenue. In fact, the entire street looks and feels more like the outskirts of Henderson, Nev., than anything in the San Francisco Bay Area. It's scary.

This is due in part to the antibusiness policies long employed and revered by Berkeley. The resulting mix of businesses includes tattoo parlors, fortune tellers, check-cashing joints and struggling small storefronts. A couple of strip clubs would fit right in.

UC Berkeley has one of the greatest engineering departments in the world. Now name one high-tech company in Berkeley. You can't; tech companies scramble out of there as fast as they can. (There is a burrito place called High Tech Burrito. That's about it.)

But the city is a microcosm of the state's larger problems and of the great Catch-22. California cannot get out of debt without drastic cuts in spending, meaning layoffs and higher unemployment, meaning less cash flow back into businesses. The state cannot get out of debt without higher taxes, which means borderline businesses folding, creating more unemployment and depressing revenues.

A foreclosed home in Stockton, Calif. Reuters

California already has issued IOUs to employees, which were eventually refused by the banks and ironically refused by the state itself.

The only real solution to save California from the inevitable actually is the inevitable: Declare bankruptcy, and reset the system.

What will then emerge will be as important as the process and recovery. We will finally get to see, as the saga unfolds, what we saw in the city of Vallejo, Calif., during its bankruptcy proceedings -- a pattern of corruption, cronyism, abuse and the defrauding of the taxpaying public. City officials making more than $300,000 a year, firemen making more than $200,000, friends hiring friends.

Government work should be a refuge, not a gold mine.

California is being broken by its own government, state and local. You can see it when you live in other states.

I have a place in Washington state. There is no personal income tax; property taxes are lower, and the sales tax is lower. The government services are better and more efficient, and the roads are nothing like University Avenue or the Nimitz Freeway. The public schools are not in shambles.

There is a recurring thought when comparing the Golden State to Washington: "What's wrong with this picture?"

UCLA's Anderson report finally concludes that California will not recover as quickly as the rest of the nation. Gee, I wonder why?

Bankruptcy should help. Just do it.