So California is now issuing "registered warrants" - a fancy name for IOUs.
This is occurring as a consequence of the cash flow finally catching up with them, and it serves as a warning to not only other states but also to The Federal Government - you can only lie about how much money you really have for so long; eventually you will start bouncing checks!
Major banks have said they will "accept" them through Friday. How much of this "deadline" is a pressure tactic to try to force the legislature to solve the budget problem is unknown, but this much is known about their "acceptance" - if you deposit one of these things it is a recourse deposit - that is, not only is it subject to holds but in addition if the state defaults on it the bank will come back at you for the full face value.
Is that possibility really the stuff of fancy? No.
The simple fact of the matter is that tax revenues have cratered as our economy "resets" to a more sustainable level. Nowhere is this more evident than in California, where the idiocy parade has been in full swing for more than two decades.
In the early 1990s Telebit Corporation tried to hire me to come work for them out in Silly Valley. They had what looked like a decent salary offer, but when adjusted for the cost of living over what I was spending in Chicago, it made absolutely no sense - even then housing was insanely expensive.
Of course their "carrot" was lots of stock options - the currency of the idiocy boom from the Tech Bubble, which was just getting going. Thank God I had more common sense than stars in my eyes, and knew, even then and 20 years ago, how to run a P&L for my personal finances. While there was always the chance that I might have jumped to this or that "hot deal" and wound up with "founders stock" in Google or something similar, for every person who managed to pull that off there are 10 who wound up broke.
The problems with California are illustrative of those facing The United States as a whole. The state has spent like a drunken sailor, believing that the "good times" of 10, 20 even 30% annual housing appreciation would stoke consumerism and thus tax revenues. This in turn led the state to gold-plate pension and employment benefits for its employees, including most particularly their various unions, where every bleat of "but the chiiiilllllllldddrrreeeeeennn" has been answered with showers of money - whether it be schools, medical care or a fancy new fire truck (or fire station!)
At the same time the largess was codified in the form of "sanctuary cities" where lawbreaking (in the form of illegal immigration) became formal public policy. With the welcome mat out, they came in droves of course, and soaked up all the "free money."
Reality now bites back - there is no free money and there never was. The supposed "appreciation" was false; it was nothing more than piling up debt upon debt, pretending that we had prosperity and rapidly growing revenues, when in fact we had borrowed it all.
The entire "foundation" under this so-called "prosperity" was nothing more than a hoax and a fraud!
So now California is literally stealing tax refunds - that is, over-payments, and issuing "IOUs", never mind that those funds are not theirs. In any ordinary business such a game (while there was any cash available) would lead to the proprietor being locked up for theft-by-conversion.
In addition so-called "entitlement" payments to some are being made with these "IOUs", which are in fact nothing more than a promise to pay next Tuesday for a hamburger that is supposedly owed today.
In truth there is no hamburger; the cow was slaughtered and eaten six months ago. It has long since been "recycled" into fertilizer, yet the charade continues onward for another day, with the sheeple believing that somehow these pieces of worthless paper make it "all ok."
The banks, assuming they stick to their Friday deadline, understand this. They're saying "uh, you know, come October those things might not actually BE good!" That's a problem, you see, as someone's going to be stuck with the bill if that happens.
A "trading environment" has almost instantly sprung up for these things, including on eBAY and Craigslist, which has led to rumblings that the government may have petitioned the SEC to deem these things "securities." Huh? Securities? Like hell; these are nothing more or less than a post-dated check, and a potentially-rubber one at that. But this hasn't stopped the government from trying to make sure that you, the person owed, are the one stuck with the worthless toilet paper, has it?
Even worse is the fact that if you're a small business and are being "paid" with these things it is illegal for you to pay your employees with them yourself. Oh no - Wage and Hour laws say you must pay your staff with actual money. This is more than a small problem as you're being effectively forced to take on the credit risk of the state!
If you're a vendor to California you had better figure this one out and fast. My view would be exactly as it as when I ran MCSNet in Chicago and the city thought it would play "I'll pay you later" with our invoices for internet service to the library system. After several warnings I simply walked up to the terminal and typed:
$ disable account_tag = Chicago_Library
When the terminals in the libraries went dark there was an immediate reaction - and threats - from the City. Too bad, said I, I don't get "forbearance" on my parking tickets! Pay up or no service. Period.
An hour later - literally - a city employee walked into our offices with a check for the full balance, and that problem never happened again.
Those of you who "serve" California need to take the same position - pay now, pay in cash, pay from now on with order or COD, or no more goods and services - period. If you don't, you're running the risk of being the bag holder, and if it happens, don't say I didn't warn you.
Finally, if that's not bad enough, there are persistent rumors flying around that these "registered warrants" are being counterfeited. Beware if you're one of those "check cashing" outfits out there in the state, or otherwise are considering accepting these things, notarized bill of sale or not. If they're phony guess who's going to eat it? Yep - that would be you.
It is time for both California and the other states (as well as our federal government) to cut the crap, admit the truth - that this so-called "prosperity" of the last 10 years was nothing more or less than a scam built upon leverage and lies, and cut budgets back to 1990 levels immediately.
The problem isn't that tax receipts are too low, it is that expectations are unreasonably high, the so-called "economic growth" was in fact false and fueled by fraud, and like it or not the economy is going to contract to a sustainable level, which is almost certainly somewhere around 30-40% smaller than it was in 2007/2008.
Yes, this means things will get worse - plenty worse - before they get better. But there is no way out of this mess that avoids going through the center of it and recognizing the truth, whether we like it or not.
The longer we delay recognition and acceptance the worse the damage to our economy will be.
Choose California - and America.
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