2 years, 11 months ago
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Won't California IOU's lead to potential hyper-inflation? It is effectively a new currency, even tho it is not $; but not legal debt either.
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M$1 Answer
From the California web site
Quote - - -
What is a registered warrant?
A registered warrant is a “promise to pay,” or an IOU, that is issued by the State when there are not enough funds to pay all of its General Fund obligations. Registered warrants bear interest and are redeemable by the State Treasury only when the General Fund has sufficient money. If the Legislature and Governor fail to enact budgetary solutions that provide enough cash for the State to pay all of its bills by July 2, the Controller will begin issuing registered warrants. Assuming there is adequate cash in the Treasury, those warrants may be redeemed on October 2, 2009. Both the issue and the maturity date will be printed on the warrant. If the Pooled Money Investment Board (PMIB) determines there is sufficient cash available for redemption at an earlier date, the warrants may be redeemed earlier than October 2, 2009.
- - - End Quote
see:
http://www.sco.ca.gov/5935.html
for extensive detail.
Warrants are an obligation of the State. They are like a promisory note with a maturity date of 10/02/2009.
They are no different than the short term financing the U.S. Treasury uses to pay daily operations expenses.
They are no more or no less inflationary than any other government spending. They are not "currency" by any definition of the term. Currency is a "medium of exchange". The government mandates that it is required to be accepted as payment for any transaction. These warrants will not be "a medium of exchange". You MAY be able to buy groceries with one but the store will not be required to accept it.
The really unfortunate thing is that people who have the IOU's and need real money will be forced to sell them to scalpers at a discount. I am already seeing adds offering to buy them.
Quote - - -
What is a registered warrant?
A registered warrant is a “promise to pay,” or an IOU, that is issued by the State when there are not enough funds to pay all of its General Fund obligations. Registered warrants bear interest and are redeemable by the State Treasury only when the General Fund has sufficient money. If the Legislature and Governor fail to enact budgetary solutions that provide enough cash for the State to pay all of its bills by July 2, the Controller will begin issuing registered warrants. Assuming there is adequate cash in the Treasury, those warrants may be redeemed on October 2, 2009. Both the issue and the maturity date will be printed on the warrant. If the Pooled Money Investment Board (PMIB) determines there is sufficient cash available for redemption at an earlier date, the warrants may be redeemed earlier than October 2, 2009.
- - - End Quote
see:
http://www.sco.ca.gov/5935.html
for extensive detail.
Warrants are an obligation of the State. They are like a promisory note with a maturity date of 10/02/2009.
They are no different than the short term financing the U.S. Treasury uses to pay daily operations expenses.
They are no more or no less inflationary than any other government spending. They are not "currency" by any definition of the term. Currency is a "medium of exchange". The government mandates that it is required to be accepted as payment for any transaction. These warrants will not be "a medium of exchange". You MAY be able to buy groceries with one but the store will not be required to accept it.
The really unfortunate thing is that people who have the IOU's and need real money will be forced to sell them to scalpers at a discount. I am already seeing adds offering to buy them.
source(s):
See above link.
Personal experience.
Processed warrants issued by several Texas counties in the '60s.
See above link.
Personal experience.
Processed warrants issued by several Texas counties in the '60s.
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M$
Thank you very much for your answer and information!
While the IOU is not a legal "medium of exchange" your key observation is that scalping (free market enforced valuation) will occur. Assuming the scalping occurs at a discount (good assumption) this effectively devalues the dollar currency -- and thus, is effectively inflationary.
Thanks again for your time and great answer!
I understand your comment but I disagree with your conclusion as to inflationary. Yes it is inflationary. ALL government spending is inflationary but spending by warrants is no more inflationary than spending by check. ( well maybe a little.) They will pay interest on the warrants. That is money which they would not have spent of they were paying by check. However, the people who are forced to sell their warrants at a discount will certainly feel like their "currency" is worth less.