Via Mark Thoma and Marshall Auerback comes a news story that has been read by Mark and Marshall as the state deciding to print its own money. But is an IOU really money when:
Banks like Bank of America and Wells Fargo stopped accepting IOUs yesterday.
If the two major banks in the state are not accepting these IOUs, they aren't exactly liquid which is a key element in the usual definition of "money".
The key point in the story is the statement I read on economist View blog, "Effectively, California is using its IOUs to create a currency. If this bill passes it would allow California to deficit spend just like the Federal Government and with the IOU's acceptable as payment of state taxes, it instantly imparts value to them."
It seems to me the decision of California to accept its IOUs for payment of state taxes, imparts absolutely no value to them. But this is just the sort of nonsense one expects when the MSM reports on an event.
Further, for the IOU to serve as currency it must be legally enforced by the State of California as money for all transactions within the state.
All the decision does is state California will accept back its IOUs in lieu of taxes.
Jct: There’s nothing wrong with small denomination California State IOUs if anyone can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes by everyone. When the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours. U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See http://youtube.com/kingofthepaupers Too bad California IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example. If they make IOUs legal tender, I'll take back every joke I ever made about Girlieman Governor Musclehead if he engineers the California state currency lifeboat. .
California is as free to issue warrants as they are to issue any other short term obligation, these IOU's are serving as the equivalent of a three month bond. And they can accept them in payment of state fees and taxes. What they cannot do is issue notes that are legal tender for third party debt.
U.S. Constitution Art I Sec 10 No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
If fact that "emit Bills of Credit" would give me some pause as to the constitutionality of the warrants. But in any event the bolded language seems pretty clear as to the currency issue.
"What they cannot do is issue notes that are legal tender for third party debt."
Jct: It would be too bad if it really was unconstitutional to save themselves from their financial catastrophe with their own chips when the feds are providing them with enough to survive.
Most banks won't accept yen either.
ReplyDeleteBanks will exchange Yen, Yuan, Pesos, etc for US dollars. What I understand is that California is trying to have the IOUs accepted as legal tender.
ReplyDeleteThis means they are trying to print their own currency. The US government cannot allow that to happen. It would collapse the economy.
Just wondering:
ReplyDeleteThe key point in the story is the statement I read on economist View blog, "Effectively, California is using its IOUs to create a currency. If this bill passes it would allow California to deficit spend just like the Federal Government and with the IOU's acceptable as payment of state taxes, it instantly imparts value to them."
It seems to me the decision of California to accept its IOUs for payment of state taxes, imparts absolutely no value to them. But this is just the sort of nonsense one expects when the MSM reports on an event.
Further, for the IOU to serve as currency it must be legally enforced by the State of California as money for all transactions within the state.
All the decision does is state California will accept back its IOUs in lieu of taxes.
Jct: There’s nothing wrong with small denomination California State IOUs if anyone can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes by everyone.
ReplyDeleteWhen the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours. U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
See http://youtube.com/kingofthepaupers
Too bad California IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.
If they make IOUs legal tender, I'll take back every joke I ever made about Girlieman Governor Musclehead if he engineers the California state currency lifeboat. .
California is as free to issue warrants as they are to issue any other short term obligation, these IOU's are serving as the equivalent of a three month bond. And they can accept them in payment of state fees and taxes. What they cannot do is issue notes that are legal tender for third party debt.
ReplyDeleteU.S. Constitution Art I Sec 10
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
If fact that "emit Bills of Credit" would give me some pause as to the constitutionality of the warrants. But in any event the bolded language seems pretty clear as to the currency issue.
"What they cannot do is issue notes that are legal tender for third party debt."
ReplyDeleteJct: It would be too bad if it really was unconstitutional to save themselves from their financial catastrophe with their own chips when the feds are providing them with enough to survive.