Posted on 07/01/2009 1:40:50 PM PDT by The Pack Knight
With the California controller getting ready to send out the first batch of IOUs on Thursday, banks in the state are still trying to figure out if they want to buy the warrants from depositors. If they decide not to, get ready for crunch time and most likely the emergence of some kind of distressed debt market that will scoop up the IOUs - at a price - from those desperate for cash.
Just because the IOUs are sent to a specific person, business or local government doesn’t mean that they can’t be traded in or simply just traded. Whoever ends up holding them by their maturity date can redeem them with the state. And there’s certainly enough IOUs coming down the pipeline to make for a nice liquid market.
The controller expects to send out $3.36 billion IOUs this month alone, if the state can’t fix its finances. And there will be plenty more to come in August and September, when the cash shortfall is projected at $3.7 billion and $6.5 billion, respectively.
But there is a catch. California will stamp an Oct. 1 maturity date on the IOUs, but will only redeem them if there is sufficient cash available.
(Excerpt) Read more at blogs.reuters.com ...
Isn’t this like the states printing their own money?................
Fitty Cent on the $.............
So all Californians with debts to the state (car registration or whatever) should write post-dated checks of October 1st for payment, stick a note on them saying they may or may not be good on 10/1. Sounds like a deal. Cut back your state withholding on payrolls to the minimum or zero.
Yes. Back by the full faith and credit of the taxpayers of the state of CA. It will be interesting to see the discount on these babies. Might make some money on trading them over the counter.
And yet the rats continue pressing their agenda which they have to know will do the same to the rest of us that it did for California.
We can only assume that the ultimate goal is to take the US down.
Can they send an IOU to their mortgage company, electric and gas company as well....oh boy, what a mess! Monopoly anyone?
BAHAHAHAHAHAHAHAHAHAHA!!!!!
I'll put them in the bank with my Confederate dollars. The way things are going, the South may rise again before Kookifornia.
Article I, section 10: “No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts”.
California is barred by the Federal Constitution from issuing IOUs.
California is admitting they are bankrupt.
There will be many unexpected consequences to come from this next week. It will be FUN to watch!
Let’s hope it blows up in their faces to teach them, and my state NY, a lesson in fiscal responsibility.
why do I want to laugh....ridiculous situation,,,,did it ever occur to CA, that they are living beyond their means...reduce spending you stupid people....
California’s normal bonds are barely investment grade as it is. As subordinated as these IOUs seem to be, I can’t see how they’re anything other than highly speculative junk bonds. I’m no expert on bond markets, but from what I understand junk bonds can run between 15-50% of the face value.
Financing through issuance of debt instruments, even poor-quality ones, is perfectly normal and acceptable, even for a government. For California to force their creditors to accept this garbage in lieu of the cash they’re actually owed is just plain criminal, however.
California is barred by the Federal Constitution from issuing IOUs.
Do you really think the socialists are going to let the Constitution stand in their way?
Can states go bankrupt and welch on their debts? If so, that will be an interesting phenomenon to watch-esp. in CA.
You are thinking of legal tender. California’s IOUs are a form of ‘Scrip’, which is not legal tender:
http://en.wikipedia.org/wiki/Scrip
It is vital that folks become familiar with Scrip, because it is a legal “alternative” or “complementary” currency to the dollar. During the Great Depression, there were over 450 examples of Scrip used, and they strongly helped to keep both local governments and markets working.
Scrip is a debt-free, closely controlled currency that maintains its value even when there is a shortage of dollars, deflation or inflation of dollars. Some varieties lose 2% of their value each month, to prevent hoarding.
Among other things, Scrip encourages the public to buy local products; it concentrates dollars at the State level (in this case), so the State can buy things not produced in the State (like pharmaceuticals), in bulk. Importantly, it keeps people buying and selling.
Scrip is fully voluntary, and works best when the State gets participation from as many producers and retailers as it can. It also allows people to save their dollars to buy things they can’t buy with Scrip.
Today, Scrip does not have to be made with high security paper and ink, like dollars, because on its back side it can have an elaborate and encrypted “2D Matrix” bar code, that can be easily scanned when a transaction is made. This keeps Scrip from being used for black market purposes, and allows the State to track it flow.
The State can recall Scrip at any time, and most Scrip are used only for a short time. But in our current economic disaster, Scrip may be a godsend to keep people afloat.
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