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IOU Part Two: California To Issue IOUs For Second Year In A Row

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Tyler Durden
Zero Hedge
Aug 24, 2010

The insolvent state of California which, just like the country of the USA, is operating without a budget (and who needs a budget when the Fed-PD complex will buy the bulk of anything and everything needed to fund ongoing daily operations), has once again ended up on the verge of bankruptcy. As a result, it has just passed a measure which for the second time in as many years (going all the way back to the Great Depression), will allow it to use IOUs in lieu of payment on everything from supplies to contracted services and health-care costs, so it can actually preserve cash to make payments to its generous debtors. On the road to banker serfdom, California has once again reached its goal.

From Bloomberg:

California lawmakers passed a bill to let recipients use state IOUs to pay fees and taxes owed to the government in Sacramento, if the warrants are issued.

The bill, from Assemblyman Joel Anderson, a San Diego Republican, passed the Senate unanimously. It requires all state agencies to accept registered warrants issued to pay for goods and services. The Assembly unanimously approved the measure in September. The Senate vote puts the legislation before Governor Arnold Schwarzenegger, whose budget aides oppose it.

California may start handing out warrants to pay some bills within two weeks to conserve cash, Controller John Chiang, a Democrat, has said. The need for the IOUs arose because a legislative logjam over how to erase a $19 billion deficit has prevented passage of a budget. The state will use the chits for everything from supplies to contracted services and health-care costs so it can make payments on priority items such as bonds.

The legislation is aimed at offsetting the hardship IOUs can impose on those who receive them, Anderson said, citing the experiences some recipients had with last year’s warrants.

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And who wouldn’t love to accept warrants from a state that is not only once again bankrupt, but can’t even balance its budget, as it is required by law. And the supreme irony is that not even this latest financial gimmick will postpone the inevitable:

Schwarzenegger’s budget office opposes the bill because it may reduce the state’s cash position to less than projected, said H.D. Palmer, a spokesman. Draining the state’s coffers would defeat the purpose of the IOUs, Palmer said.

Less than projected? Based on what non-existant budget?

The tragedy of America’s bankruptcy (oh wait, it can never go bankrupt, we keep forgetting) will be a long and painful one.

This article was posted: Tuesday, August 24, 2010 at 3:23 am

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