Posted on 06/29/2009 3:28:58 PM PDT by Lou Budvis
California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red.
Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country. ....
(Excerpt) Read more at ft.com ...
Barney Franks to the Rescue Ping!
Deficit forces California to issue IOUs
What a coincidence...I was just preparing one for them for my property taxes...think they will take it?
Aren’t people going to stop accepting the IOUs??? I wouldn’t take theme unless I had to...
The more people accept them, the more pressure there will be to turn them to cash. Will that increase pressure to raise taxes? Or reduce spending?... ...
Who says states can’t print their own money?
Blue is a very expensive color.
“I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s failure to live within its means”
“Who says states can’t print their own money?”
I believe that may be covered by Article 1, Section 10 of the U.S. Constitution. But there are probably a hundred laws by now that imply they can’t.
I have not gotten my tax rebate yet - do I get to collect interest?
What are California’s creditors going to do with I.O.U.s, they can’t spend them, no one has to accept them from the creditors so they’re just stuck with them.
..........and the converse....
From Client Alert
If these are nogotiable bearer IOUs, then it seems these warrents can be used as money.
At least Washington won't have to issue IOUs.. they can just print the money should the unlikely need arises!
Wot? They've already started printing the money? . . . .
Several years ago I remember a similar event here. Banks credited depositors as though their paychecks were being deposited.
At that time it was a matter less serious than it is now, the state had the money but temporarily could not make payouts.
It is legal for the States, cities, or even private individuals to print ‘Scrip’, which is an “alternative” or “complementary” currency, but importantly, is NOT “legal tender”. Some major US cities did this during the Great Depression, and it helped out the local economy a lot.
In our current depression, Scrip would be a major help if there is deflation, inflation, or instability in the US dollar (USD). It does a lot of things, like keeping local and State government and retail markets running.
While it is NOT backed by gold or silver (which was a recent problem with the Liberty Dollar), Scrip is a very controlled currency. It has a fixed value, and some types will lose 2% of its value every month, to discourage hoarding. Accompanied by price controls by those retailers who accept it, it is a super stable currency. Issuers can recall Scrip at any time.
When a State would issue Scrip, it does not have to be made with high security paper and ink, like USD, because it can have a data matrix bar code printed on it, is associated with whoever “owns” it, and has to be electronically re-registered when transferred.
This is a lot more intrusive than USD, but it makes Scrip much harder to use for the black market, and insures that all taxes are paid.
Scrip encourages the use of locally produced goods and services, while at the same time, when people buy Scrip with USD, it concentrates USD at the State level, so the State can “buy in bulk” goods and services not produced in that State. Things such as pharmaceuticals can then be distributed for purchase with Scrip.
Within the Scrip region, its use also takes pressure off the USD, and helps to stabilize it. Consumers can still use both, and it allows them to set aside their USD to purchase things that can only be purchased with USD.
A note about legal tender. Legal tender is a very important concept, and it *only* applies to physical, printed, paper USD. You might have $1M in the bank, but not a bit of it is legal tender until it is converted to paper money, which is in your hand.
Legal tender *must* be accepted for ALL debts, private and public. This means if you buy something in the store, the store *must* take payment in printed cash, even if it rejects credit and debit cards, checks, Scrip, or any other electronic means of money transfer.
Nobody *has* to sell anyone, anything, of course, so the sale and the debt must be made first.
But right now, California is using a basic form of Scrip, that it calls “IOUs”, and the rest of us, and our State governments, need to become very familiar with the concept. It could take a lot of the edge off the depression, if things get really bad.
You could buy the warrants for pennies on the dollar and wait for California to redeem them. If I had more cash (daughter getting married this month) I would do that.
When do I get real money for my Schwarzenegger bucks?
What Are Registered Warrants, a.k.a. IOUs?
Registered warrants are promises to pay that are issued by the State Controller's Office, stamped “registered” and endorsed on the back by the State Treasurer as “not paid for want of funds.” Gov. Code § 17270. Under the Government Code, registered warrants are legal investments for funds of all banks and are negotiable instruments. Id. §§ 17202-17205. Registered warrants bear interest at a rate fixed by California law from the date of registration to the date of maturity, or, if they bear no date of maturity, the date upon which the California Treasurer advertises that they are payable upon presentation. Id. §§ 17212, 17275-17276. The maximum interest is five percent per year. Id. § 17.222. In this sense, they are akin to involuntary bonds: the recipient is compelled to invest in the State, and the State is legally obligated to pay the recipient with a specified rate of return.
The 2009 warrants will carry the maximum permissible interest and will mature in October 2009
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