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California Prints Its Own Currency - A Satire?
Real Clear Markets ^ | 7/6/2009 | Bill Frezza

Posted on 07/06/2009 5:38:55 AM PDT by SeekAndFind

Following the lead of the Federal Government, California this week began issuing its own currency, which it plans to use to stave off bankruptcy. "As our state staggers under massive debt, uncontrolled spending, and dysfunctional government, we look to the example of our national leaders," said Governor Arnold Schwarzenegger. "When faced with these exact same challenges, Congress started printing money. If it's good enough for Washington, it's good enough for Sacramento!"

Called "Individual Registered Warrants (IRWs)," State Controller John Chiang indicated that California would send out $3.4 billion of this negotiable scrip in July alone. Small business owners, government supported private agencies, taxpayers owed income tax refunds, and many state contractors will be forced to accept the scrip, which is set to mature in October - if the state resolves its budget woes.

Anticipating a flood of cash-strapped recipients looking to convert their IRWs into something that can be used to buy food and pay rent, Payday Loan companies in California began advertising instant redemption services. Liquidity will come at a stiff price, with exchange rates discounted up to 40% off face value. "Given the high probability of default and the inevitable public vilification of anyone who makes a profit buying IRWs, we feel this discount rate is appropriate," explained a Payday Loan officer who would only give his name as ‘Vito.'

Other bankrupt state governments are looking to follow suit. In New York, whose legislators were last seen conducting a pie fight in the State House parking lot, Governor David Paterson indicated that plans to print Empire State Entitlement Certificates (ESECs) were in an advanced stage. "ESECs will be as good as gold," claimed the Governor, who recently returned from a fact finding mission to Zimbabwe to study that country's currency system.

Goldman Sachs has set up both a trading desk and electronic currency exchange to handle the expected influx of new state currencies. Lawyers for financier Bernard Madoff filed motions to delay his prison term so Mr. Madoff could respond to urgent requests to help design the new exchange's accounting system. A number of derivative instruments insuring the financial returns from a weighted basket of state currencies and lottery tickets have already begun trading as hedge fund managers sought new ways to profit from the next financial meltdown.

Confounding bearish sentiment, IRW futures surged on the news that House Speaker Nancy Pelosi and Senator Barbara Boxer were preparing to introduce legislation declaring IRWs legal tender for the purchase of any product manufactured by a company that is at least 10% owned by the US government. A spokesman for GM, speaking off the record, said the company is inclined to support this legislation provided IRWs could be used to satisfy outstanding pension obligations. When asked whether IRWs could also be used to purchase stock in banks that have been more than 10% nationalized, Speaker Pelosi paused, whispered something to an aide, and thanked the reporter for his suggestion.

Reaction from the White House to the burgeoning state currency movement was muted. "Extraordinary times call for extraordinary measures," press secretary Robert Gibbs offered when asked whether currency competition from the states would be welcomed. "While the issue requires further study, we are pleased to see forward- looking governors doing what they can to save or create jobs."

Free market advocates who have long opposed currency monopolization by the Federal Government were left in a quandary. "We would prefer to see private currencies backed by gold, not by the taxing power of bankrupt state governments," said Ed Crane, president of the libertarian CATO Institute. Nobel Prize winning economists for the New York Times pooh-poohed the antiquated notion that gold would be an appropriate medium to back currency. "Inflation fears are a form of mental illness," stated Paul Krugman in a column that lashed out at those reluctant to accept state scrip. "This is a time tested solution that played a major role in the Great Depression. The only problem with state currencies is that we don't have enough of them."

International reaction was mixed. EU Analysts were amused to see the US currency system begin to fragment just as European national currencies give way to the Euro. China's Vice-Premier Li Keqiang did not return calls seeking comment, though he was spotted stocking up on toilet paper at a recently opened Wal-Mart outside of Beijing.

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Bill Frezza is a partner at Adams Capital Management, an early-stage venture capital firm. He can be reached at bill@vereverus.com.


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: california; iou; recession

1 posted on 07/06/2009 5:38:55 AM PDT by SeekAndFind
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To: SeekAndFind

What is the Constitutionality of any state or entity other than the Fed issuing currency, IOUs etc.?


2 posted on 07/06/2009 5:44:22 AM PDT by relictele
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To: SeekAndFind

Is this a satire?


3 posted on 07/06/2009 5:44:55 AM PDT by Ancient Drive (will)
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To: SeekAndFind

Outstanding satire! Thanks for posting.


4 posted on 07/06/2009 5:45:46 AM PDT by PGalt
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To: SeekAndFind

Yes, but can you trade CalBucks for carbon credits?


5 posted on 07/06/2009 5:46:42 AM PDT by Hugin (GSA! (Goodbye sweet America))
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To: SeekAndFind

The I.O.U. s being printed and issued by the state are a defacto currency! Are banks accepting it? yes, Are businesses accepting it? some are. Defacto currency.


6 posted on 07/06/2009 5:50:23 AM PDT by 2001convSVT ("Only Property Owners that pay taxes should have the right to Vote")
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To: relictele

The Fed issuing currency is actually unconstitutional.


7 posted on 07/06/2009 5:50:36 AM PDT by ovrtaxt (Truly Constitutional money isn't just backed by gold and silver- it IS gold and silver.)
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To: relictele
You hit the tight question. Under Article I of the Constitution only the federal government has the power to "mint money." What California is doing is clatly unconstitutional.

Congressman Billybob

8 posted on 07/06/2009 5:57:19 AM PDT by Congressman Billybob (www.AmericasOwnersManual.com)
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To: relictele

What’s the Constitutionality of the Fed issuing currency?


9 posted on 07/06/2009 5:58:13 AM PDT by OneWingedShark (Q: Why am I here? A: To do Justly, to love mercy, and to walk humbly with my God.)
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To: Congressman Billybob

However, the Federal Reserve is not an entity of the federal government; it is a private bank.

Further, the Constitution mentions gold and silver as possible exchange media... not papers that the government pays a private entity to print and then says are worth something.


10 posted on 07/06/2009 6:01:12 AM PDT by OneWingedShark (Q: Why am I here? A: To do Justly, to love mercy, and to walk humbly with my God.)
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To: Congressman Billybob

Printing scrip is not unconstitutional.


11 posted on 07/06/2009 6:03:11 AM PDT by Publius Valerius
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To: SeekAndFind

Perhaps if the citizens of the US started paying their taxes with self made script the government would get a hint.

Call a personal stimulus program.


12 posted on 07/06/2009 6:10:06 AM PDT by CPOSharky (Too many zeros in the budget. And the White House.)
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To: SeekAndFind
The U.S. Constitution, ratified by the states and adopted by Congress in 1789, forbade states from issuing their own currency, a practice in which the states had engaged for many decades. Exchange rate and price evidence from 1748 through 1811 indicates that this transition did not improve monetary performance, nor is this evidence consistent with the anti-state-currency rhetoric presented at the Constitutional Convention. Offered as a solution to economic ills that were known to be phantoms, this constitutionally created U.S. dollar currency union was a usurpation of state sovereignty by merchant-bankers for personal gain.
13 posted on 07/06/2009 6:26:38 AM PDT by Caipirabob (Communists... Socialists... Democrats...Traitors... Who can tell the difference?)
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To: SeekAndFind

Any fiat money issued by states even if it were to be legal would be pretty worthless little different than our US currency is becoming. However, if states issued gold or silver coinage containing its actual value in precious metal that might be interesting.


14 posted on 07/06/2009 6:29:28 AM PDT by The Great RJ ("The problem with socialism is that you eventually run out of other people's money." M. Thatcher)
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To: SeekAndFind
Thank you! I haven't had a good laugh in days. Wiping the tears out of my eyes ROTFLMAO.

Μολὼν λάβε


15 posted on 07/06/2009 6:43:08 AM PDT by wastoute (translation of tag "Come and get them (bastards)" and the Scout Motto)
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To: CPOSharky

If I was in Cali, I would pay all Fed Taxes with the Cali IOU’s.

Oh, and all Cali Taxes with Cali IOU’s.

Wouldn’t that be a hoot!


16 posted on 07/06/2009 6:53:39 AM PDT by Gvl_M3
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To: Publius Valerius
If it is used the same as currency in general circulation, yes, it is unconstitutional. Rhode Island was issuing its own currency as of 1776, with disastrous results. That is why that clause is in the Constitution.

Congressman Billybob

17 posted on 07/06/2009 7:08:09 AM PDT by Congressman Billybob (www.AmericasOwnersManual.com)
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To: Ancient Drive
-- Is this a satire? --

Yes.

18 posted on 07/06/2009 7:10:07 AM PDT by Cboldt
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To: 2001convSVT
-- The I.O.U. s being printed and issued by the state are a defacto currency! Are banks accepting it? yes, Are businesses accepting it? some are. Defacto currency. --

No. Defacto evidence of debt. Similar to gift certificates (currency? No.), and very much like a "promise to pay" note or a judgement from a court.

19 posted on 07/06/2009 7:12:28 AM PDT by Cboldt
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To: SeekAndFind

I’ll go on record as saying this is a bad, bad thing. It will bring misery to many and further destroy our country.

FWIW, I said pretty much the same thing when lenders started doing sub-prime mortgages.


20 posted on 07/06/2009 7:27:04 AM PDT by upchuck (Psalm 109:8 ~ Let his days be few; and let another take his office.)
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To: SeekAndFind

California to the laws of economics...”I reject your reality and substitute my own!!!”Oh well, putting off the bad news will only result in a bigger train wreck later.


21 posted on 07/06/2009 8:35:53 AM PDT by Red Dog #1
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To: SeekAndFind

Again, satire is indistinguishable from reality.

The paper dollar was long an IOU for gold/silver coin ... until one day the gov’t declared it wasn’t. Now CA is issuing IOUs with no apparent way to fullfil all of them (struggling to merely balance the budget, CA will be unable to reduce spending, or increase taxation, far enough into the black to pay off these IOUs), which can only lead to a “pay on demand, but it’s more to convenient to use these” model, which will inevitably give way to declaration that it is its own base currency - to wit, CA just introduced its own currency in violation of the Constitution.


22 posted on 07/06/2009 8:42:45 AM PDT by ctdonath2 (John Galt was exiled.)
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To: Congressman Billybob

Technically speaking, these are debt instruments - essentially state-issued bonds. Aside from the long-dead letter of “gold & silver coin,” the Constitution only forbids states emitting “Bills of Credit.” Since the state doesn’t “intend” them to circulate as money, odds are it doesn’t run afoul of the prohibition.

It might be an interesting question for a federal court to resolve, though.


23 posted on 07/06/2009 8:53:45 AM PDT by mvpel (Michael Pelletier)
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To: All

Have the jerks running Kaliforniya ever heard of Gresham’s Law???


24 posted on 07/06/2009 9:02:33 AM PDT by Lysandru
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To: SeekAndFind
Anticipating a flood of cash-strapped recipients, Payday Loan companies began advertising instant redemptions. Liquidity will come at a stiff price, with exchange rates discounted at 40% off face value. "Given the high probability of default and the inevitable public vilification of anyone who makes a profit buying IRWs, we feel this discount rate is appropriate," explained a Payday Loan officer who would only give his name as ‘Vito.'

THE (cough) COLLECTOR---Vito's first cousin (flying in from South Jersey).

"Lessee, where'd I put dem cement overshoes."

25 posted on 07/06/2009 1:00:23 PM PDT by Liz (When people fear govt, we have tyranny; when govt fears the people, we have freedom.)
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To: SeekAndFind

"Ach der lieber, mama mia.Dat sobanagun Veetoe's gonna collect
Kaleefirneeah's IOU's? Duz he knowh hez puttin a Kennedee in dainjah?
Ai getda nasheenul sumpatty ven anudder Kennedee goz kaputz.....ifn Mariah
chokhes on dah tahkeoht peezah."

" Chonny and Wooty, ai gotda vunny veeling dah Reepublucan Potty tinks
RINOS are pure crapola. Ai hear RINOS kin getz jops ass Val-Mart greetahs,
Home Depot paint mixahs, McD's ketchop pumpahs, undt vaitahs at Ved Lopstah."

26 posted on 07/06/2009 1:10:39 PM PDT by Liz (When people fear govt, we have tyranny; when govt fears the people, we have freedom.)
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To: SeekAndFind
Photobucket
27 posted on 07/06/2009 8:51:25 PM PDT by Kozak (USA 7/4/1776 to 1/20/2009 Reqiescat in Pace)
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