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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Skeeter Bug who wrote (211630)7/22/2009 2:16:12 AM
From: RockyBalboaRead Replies (1) of 306849
 
It will be interesting whether, or how california will get rid of the IOUs.
While they have a short term maturity date which is one of the last few differences to "money", the dollars backing IOUs will not be available unless California stops creating deficits on its state budget. So, new IOUs will be issued to pay and to replace expiring IOUs.

Since there is no short term fix for the state budget, other than a new bond issue and drastic increases in tax revenue the gap should grow over time.


the US Constitution prohibits the States from issuing thier own currency - which the CA IOUs clearly are - as defined in the Constitution.

This is precisely right. The California proposal described above is the functional definition of "legal tender". Less well known is the fact that citizens are not required to settle private debts in Federal Reserve notes, provided they agree to an alternate tender ahead of time.

I cannot conceive Bernanke and the FRB will allow this to stand. But if they are that weak-minded or willed, then fasten your seatbelts. Momentous political events lie directly ahead.

Let's assume this does come into effect. I see no reason these IOUs would remain confined inside California's borders. Example. Others outside CA could accept these "bills of credit" as payment at a 10% discount from face, knowing they could resell them at a 5% discount to anyone owing CA taxes. This kind of discounting is done every day with accounts receivable.

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