Posted on 07/07/2009 12:19:20 PM PDT by Ernest_at_the_Beach
LOS ANGELES (MarketWatch) -- California's State Treasurer's Office has laid down ground rules for redeeming promissary notes, or IOUs, sold to third parties through Ebay, Craigslist or other means, demanding supporting documents for such sales, STO spokesman Tom Dresslar said Monday.
(Excerpt) Read more at marketwatch.com ...
Just when you thought CA couldn’t get stranger.
This is the best slow motion train wreck EVER!
The new “Confederate Money?”
LOL!
Next is a tax on IOUs.
Who in their right mind would take an IOU chit from a bankrupt state as payment for anything?
So not only does the payee get stuck with an IOU instead of the legally contracted cash, they can't move this virtual money around until CA somehow comes up with not only enough money to close the budget gap but enough surplus to pay off the IOUs.
When the Soviet Union officially fell, the briefly-reported and salient reason was that the gov't simply could not issue paychecks, so (put concisely) everyone just went their separate ways. With this practical prohibition on trading IOUs, CA is doing the same.
this essentially makes their paper even more worthless.
At least when the feds disconnected paper dollars from gold they let people freely exchange the worthless paper, which allowed a defacto agreement on value thereof.
CA’s trying to create a debt currency which, for most practical purposes, cannot be exchanged for anything. Right.
While this is going on, the Sacramento Bee...in the state Capitol mind you...is reporting on Michael Jackson and Michael Jackson.
Not a peep from the Assembly or the Senate.
Hey, EVERYONE! The State of California is BANKRUPT and those IOUs are worthless!
This is not the state's money. It's the taxpayer's money duly owed them.
The vendors are receiving these IOUs for past work/deliveries. They have no option for the accounts receivable.
In the future I suspect there will be many vendors that will not sell anything to the state.
That's a nice sentiment but the people in control do not agree with us.
“Who in their right mind would take an IOU chit from a bankrupt state as payment for anything?”
An investor.
Let’s say you’re a corrections officer and you get a $2500 state IOU instead of a paycheck. The grocery store doesn’t take IOUs. Neither does the gas station. Your mortgage lender certainly doesn’t. The IOU is effectively worthless until the state allows you to redeem it.
An investor/gambler comes to you and offers to buy your state IOU for 90 cents on the dollar. In need of cash to make that car payment, you take him up on it. You give him the $2500 IOU and he gives you $2250 in cash. You can now pay some bills and eat.
The investor is betting that at some point in the future he will be able to redeem the IOU for the full amount (or even a partial amount so long as it’s more than 90%). On the other hand, he risks the IOU becoming a Confederate bond in 1866: irredeemable and utterly worthless.
By adding red tape to the transfer of IOUs, the state is making it difficult for IOU holders to convert them to cash in order to make ends meet. This is a first for for fiat currency- government trying to make the currency it issues effectivelt worthless.
If it appears that the IOU may be redeemed in the near future- two or three months, then the resale value will remain high. But if this thing drags out for more than six months or even a year, then the resale value will plummet towards 50 cents on the dollar. Yikes! The going price for these things on Ebay and Craigslist will be extremely telling.
The question answers itself.
Wait a minute! You mean I can buy some of California’s debt on Craig’s List? But all I wanted was to find a futon.
That’s what this is all about. CA wants to make sure any cap gains made on the trading of these IOUs are taxed. Desperate IOU holders sell to speculators at a loss, then the speculators go to CA later and expect to redeem the full amount. If getting the IOU from CA counts as income, then trading it at a loss probably wouldn’t qualify as a valid business deduction.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.