Posted on 07/01/2009 4:25:58 PM PDT by EBH
California has begun to issue IOUs to many state vendors as it grows low on cash. The largest state in America as measured by GDP is up against a $24 billion deficit.
According to the FT, “Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country.” The state could be joined by Michigan, Florida, and New York as those states face similar problems balancing state budgets.
The IOU issue has far-reaching consequences. The first of these is that many critical vendors may refuse to take IOUs. Companies that work for states that are in financial trouble may simply refuse service, if they can afford to forgo the business. There is no guarantee that the IOUs will be paid, particularly if any of the struggling states are forced into some form of receivership. California could lose access to critical suppliers that help maintain its infrastructure and programs that are critical to compensating state employees.
The other side of the IOU coin is just as troubling. Some of the firms being asked to take IOUs cannot continue to operate without cash flow. They cannot pay their employees or their operational expenses with promises from the state. Some of these firms may be forced to close. That will deprive California of their services and it will add to the rolls of the state’s unemployed which will pile another burden onto the heap of unemployment benefits and social services. The IOU program becomes a vicious circle.
There is a very reasonable chance that some of America’s largest states will begin to default on critical obligations including essential services and bond payments. These states will no longer be able to raise money in the capital markets. They will have no where to go other than the lender of last resort.
And, that would be the US Treasury which is already straining under the obligations of the US budget deficit.
I live in California and it’s socking to me what blithering idiots we have serving in our state capital.
It’s time for millions of us to travel to Sacramento and shut the friggen place down until our state leaders get the big picture.
Oh good grief....pathetic.
This is the way the federal government will own the states.
Look out folks.
Any firm considering a new contract to provide goods and/or services to CA or any other “IOU-issuing” state will think twice before proceeding. Figure that the price will include premiums, or that other special protections for such contractors will be built into the deal — whereas states that have managed their affairs sensibly can go on as before.
Perhaps CA will tire of paying extra because of its profligacy. I can only hope.
It is long past the time to get out of CA. It is finished. The task ahead is to stop what is happening in CA from spreading to the rest of the country.
The IMF and world bank (funded by the taxpayers) just forgave a billion dollars in loans to Haiti.
The US government just gave away 70 million last week to help immunize foreigners.
We will pay these IOU’s. California will raise taxes. California will spend even more next year and the year after.
While its exciting to rage against the machine, nothing will change until the entire system falls.
California still have triple aaa rating right?
The state could be joined by Michigan, Florida, and New York as those states face similar problems balancing state budgets...
Umm, Florida is nothing at all remotely like any of that.
Pure BS.
A Bay Area television news broadcast featured various business people who had already rendered goods and services to the state and were steamed at the notion of IOU’s. Some said they were facing financial ruin because they couldn’t pay their own creditors with a worthless promise of payment.
Can I issue IOUs to the state to pay for taxes?
All the states listed are being bankrupted by illegal aliens and in MI, CA and NY it is also the unions. MI has less of an illegal problem except for the Islamic Republic of Dearborn.
Miss Charlene Crist has done a stellar job giving convicted felons the vote, pandering to illegal aliens and by her concern for global warming.
Isn’t this just an illegal form of tender?
I liked this article as it explained in plain language how the IOU is issued and to whom. It also elaborated on the potential consequences.
My guess is that California’s biggest budget buster is salaries, benefits, employee health care and pension contributions. Cut all these back 30%. It can only be done via bankruptcy. The only way these contracts can be revisited
California has other ridiculous expenses it can cut but first I would work on all payments to state of California employees and retirees
The Constitution doers not permit states to print their own currency, which is exactly what an IOU is. Do you think that the Secret Service is going to take action against the Dem dominated Calif state government?
I think you’ve got it ass backwards. With all due respect, we need to retake the state and stop this legislative madness that passes for reasoned leadership.
Three to five million conservative (move in) volunteers in heavy Democrat districts could turn this state around, and the nation to boot.
San Francisco and Los Angeles being the biggest problem, this state is definately in play, if folks want it to be.
Not so long ago, California had the fifth largest GNP in the world. It’s too big an asset to just surrender to the global communist movement.
The second I hear about Ohio doing this, Dh will go in and up his deductions so that we owe $100 next year. They will not get to keep any tax money from us!
The notes will be called Wimpy’s
Wimpy is said to have pleaded “I will gladly pay you Tuesday for a hamburger today.”
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