Finally Some Good News Out of California

Finally, there is some good news out of California:

SACRAMENTO — State vendors and contractors could use their government-issued IOUs to pay state taxes, fees and liens under a bill approved by an Assembly committee. The Business and Professions Committee unanimously passed the bill by Assemblyman Joel Anderson during its first legislative hearing Tuesday. The bill requires the state to accept its own IOUs as payment for money owed to the government.

As a stopgap measure, this will ensure a demand for the state’s IOUs. Each individual vendor, contractor, or even state employee will accept the state’s new warrants up to the individual’s expected tax liability. Eventually the warrants will also be accepted by retail establishments and others who also have liabilities to the state of California—meaning that the state could (eventually) issue a number of warrants equal to the total of all such obligations owed to the state, on an annual basis.

The next step is to issue these IOUs at zero interest. The taxes, fees, and liens will be sufficient to generate a demand without promising interest. Currency is simply an IOU that does not pay interest—it is “current”. As I suggested before, the state can also accept its own “currency” in payment of fees and tuition paid to state institutions of higher learning—further increasing demand.

Unlike other local currencies around the country—such as the BerkShare in Massachusetts, the new California currency will be “tax driven”, thus sustainable. In other words, it is a sovereign currency backed by the state’s ability to impose taxes. As California is reportedly the eighth largest economy in the world, a new Bear Flag Dollar ought to do fairly well internationally (meaning in the United States and abroad).

It is amazing that the Obama Administration is ignoring the fiscal crisis in that state (and in all states). Since Arnold cannot run against Obama in the next election, he can at least threaten to secede and run for President of the new Great Nation of California. Mike Norman has outlined a nice game of chicken he could play:

“Here’s what Arnold can do, and I’ve said this before: Declare himself President of California and secede from the Union. Then he can issue his own currency (which is what these I.O.U’s are, effectively). After that, there’d be a short war and California would be brought back into the U.S. and war reparations would be paid to the state. (Possibly far more than what the state was asking for anyway.)”

Perhaps it is a bit far-fetched, but better than going bankrupt quietly—think Orange County in 1994 or New York City and State in 1975-76. See also John Avalon’s thoughts on the possible bankruptcy of both NY and CA.

Hey, here’s an idea. Why don’t all 50 states secede, form a Second United States, issue a New Dollar, and ramp up spending to the required level to get the national economy as well as the economies of the 50 states on a path to full employment?

About L. Randall Wray 64 Articles

Affiliation: University of Missouri

L. Randall Wray, Ph.D. is Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute.

His research expertise is in: financial instability, macroeconomics, and full employment policy.

Visit: L. Randall Wray's Page

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