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« Previous Entry | Main | Next Entry » Is California Printing Its Own Money?
Question: Is California printing its own money? Paul Solman: Funny you should ask. The State of California Franchise Tax Board website currently features this statement: "We will accept registered warrants...towards the payment of tax liabilities." State taxes, of course, not federal. But think about it. California is now explicitly printing its own money. Not to wax theoretical, but let me briefly acknowledge that all money is a form of debt. A main distinction of currency is that in return for its extraordinary convenience --you can carry it around and use it to pay for anything, anywhere -- you get no interest while holding it AS currency. California's "registered warrants," by contrast, are IOUs paying 3.75 percent per annum. (Economist Jamie Galbraith calls them "CAIOUs" and suggests they be pronounced ka-YOO --"cailloux" -- French for "pebbles.") But if the CAIOUs can be used to pay bills in California, including TAX bills, then what's the difference between them and FEDERAL money? And if California can issue its own money, why not New York? Look, California is desperate. Like so many of us, it lived beyond its means, or taxed below its spending, or both. Three classes are now resisting the reckoning: those who "spent" the money and owe the shortfall (taxpayers); those on whom the money was spent (employees, vendors, other recipients of state funds); and those who loaned the state money (bondholders). Understandably, no class wants to take the hit, or take the hit first. For political reasons at least, the Obama administration is reluctant to come to the rescue, though as an immediate, get-the $-to-the-people program, this would seem to be as effective a stimulus as any. Hence, the political stalemate. Hence, California's "we'll-print-our-own-money" solution. But as some are beginning to point out, the implications could be enormous. There are already secessionist noises in the land. If states begin issuing their own money, who knows where it might lead? As Marshall Auerback put it yesterday: "It will be viewed as a stop gap measure at first, and then could very well become entrenched as states realize they have a way to escape balanced budget requirements." -- Posted July 13, 2009 | Comments (3) | Permalink
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Right again, Mr. Solman. As soon as the warrants are accepted as payment they become at least a form of money, but only a form the desperate would accept. Don't you think the multiplier on that debt will be pretty small?
Of course, if the U.S. Treasury starts accepting that junk, all bets are off.
I completely agree that this doesn't seem to have been considered very fully yet.
JP, I agree with your comment, but it seems to me that if other states adopt this kind of solution as Mr. Solman suggests, it will become more widely accepted due to widespread use. Herd mentality, perhaps, might suggest that even though something is a terrible idea, the more widely it is deployed, the more widely it is accepted, 'cause everyone else is doing it.
This kind of stopgap measure is, I'm sure, a last resort for anybody. The habit of bureaucracy, however, seems to be to keep growing more in the direction it is pointing at any given moment, without ever considering a reversal of opinion. For concrete evidence of this, one need look no further than US statutory law, with so many outmoded, unenforced rules on the books that you're probably breaking one right now, no matter what you're doing.
It seems to me that changes to governmental systems are never temporary; the daily decisions of bureaucracy are essentially the pouring of legal concrete, though they are sold to the public otherwise. If we can manage to change that about our system, I strongly believe we can fix anything else that might be wrong with the nation I still love to pieces.
When you can take these IOUs to the drugstore or grocery store and use them, then they will be money, by definition. Only being able to use these IOUs as payment with the source that issued them, makes them a forced debt and not money. Moreover, the moment the IOUs did begin to circulate as money the Feds would file a lawsuit to stop their issuance because the Constitution clearly states only Congress is allowed to coin money.
Also, not all money is a debt. The reason people like and trust gold/silver is because it's no one else's liability.