How are Cali IOU's legal?

[ItsTime]

Can someone explain this to me? Has it been done before?

[FrankRep]

Communities print their own currency to keep cash flowing

USA Today
April 10, 2009


A small but growing number of cash-strapped communities are printing their own money.

Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.

The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

http://www.usatoday.com/money/economy/2009-04-05-scrip_N.htm

[eduardo89]

I thought the states were prohibited from printing bills of credit? wouldn't this count as one?

[risk_reward]

Can someone explain this to me? Has it been done before?

No, it isn't legal. (Is anything legal anymore?) California has done it before. They lost a lawsuit to state employees last time they did it. Not only did it violate federal law it also violated state law.

The Federal Reserve has already issued a warning to CA. As long as it doesn't last long and California repays the debt, no one will make too big a fuss.

[Oyate]

They are illegal to smoke but not to posses?

[emazur]

Wouldn't it be legal so long as they weren't declared legal tender?

[mport1]

Can someone explain this to me? Has it been done before?

Why would it matter whether or not it is legal? The government never follows its own rules.

[Feelgood]

The Federal Reserve has already issued a warning to CA. As long as it doesn't last long and California repays the debt, no one will make too big a fuss.

How does a private bank issue warnings to a state? :eek:

[UtahApocalypse]

Someone on another forum made a great point.

Obama and feds have decided not to bailout California. This is a good choice but here comes the kicker. The State of California has found a really simple, and slick loophole. By issuing state IOU's California will still get bailed out. here is how it works....

California issues a person, or company a State IOU. The receiver then cashes these IOUs at banks that will accept them and pay out in cash. So now the bank is holding the IOU and can collect interest on it. Here is the fun part... the banks that are accepting IOU checks? the Bailout banks! So they are giving the IOU receiver bailout money, then will collect the IOU from California and the interest. So when you connect the dots the bailout is paying California now, and the banks are just intermediary that has nothing to lose in the deal.

[idiom]

Its not illegal until you are caught.

[literatim]

Someone on another forum made a great point.

Obama and feds have decided not to bailout California. This is a good choice but here comes the kicker. The State of California has found a really simple, and slick loophole. By issuing state IOU's California will still get bailed out. here is how it works....

California issues a person, or company a State IOU. The receiver then cashes these IOUs at banks that will accept them and pay out in cash. So now the bank is holding the IOU and can collect interest on it. Here is the fun part... the banks that are accepting IOU checks? the Bailout banks! So they are giving the IOU receiver bailout money, then will collect the IOU from California and the interest. So when you connect the dots the bailout is paying California now, and the banks are just intermediary that has nothing to lose in the deal.

This isn't a loophole because what they are doing is illegal.

[newbitech]

This isn't a loophole because what they are doing is illegal.

I think he's talking about getting bailout money. Pretty sure the bailout was illegal as well. Point was, Cali found a way to get their hands on that money anyways. It is a loophole in the scheme of an illegal system of bailouts.

[UtahApocalypse]

I think he's talking about getting bailout money. Pretty sure the bailout was illegal as well. Point was, Cali found a way to get their hands on that money anyways. It is a loophole in the scheme of an illegal system of bailouts.

Now you have it.

[devil21]

It won't be California repaying the banks for taking the IOUs. The Fed will do it on the sly.

[acptulsa]

It's neither illegal nor immoral for California to issue bonds. For California to force people to buy them is both, however.

[ladyjade3]

IOUs not bonds. We're talking IOUs instead of paychecks and welfare and food stamps.

[newbitech]

It's neither illegal nor immoral for California to issue bonds. For California to force people to buy them is both, however.

I understand why you would call them bonds. That's basically what FRN's are too.
The difference between bonds and FRN's is ""this note is legal tender (http://en.wikipedia.org/wiki/Legal_tender) for all debts, public and private"

State bonds are not legal tender as far as I am aware.

[eduardo89]

Since the IOU's are not legal tender, are you forced to accept them as payment in lieu of FRN's?

[idiom]

Well you can't pay your tax with it.

If you could it would effectively be currency.

[newbitech]

Since the IOU's are not legal tender, are you forced to accept them as payment in lieu of FRN's?

I don't know that you are forced to accept them. Apparently this is how CA is paying entitlements, unemployment, and service vendors. So instead of a direct deposit to you bank, you get an IOU in the mail. Then you hold this IOU until such time as you can redeem them at interest.

Or apparently you take them to certain banks to trade them in for discounted cash.

You could probably not accept them and get paid without interest when CA has the cash. OR you try and demand cash or sick your collection agency on them lol. Either way, you aren't getting your cash now.

So in a way, yes the state is forcing people it owes money to wait for payment. I wouldn't consider the IOU's as payment.

[tron paul]

A sovereign state like California has more authority to print IOUs and money than the private bank cartel known as the Fed.

[devil21]

Most of this thread is for nothing since the SEC plans to treat them as muni bonds, instead of bills of credit.

[mediahasyou]

everything the government does is legal.

[Wadesc]

The issue of IOU's in this case was pretty clearly illegal.

Just recently the SEC decided to treat these IOU's as securities because of the fact they were being sold on Ebay and such.

Being paid in something other than cash is Payment in Kind. Essentially it is a breach of contract to pay "in Kind" unless it was originally stipulated in the contract. Contractors and such will most likely treat it as so. A security is technically not cash.

I can see a mountain of lawsuits coming from this. There have been previous rulings on IOU's I believe.

[idiom]

They should just mint their own currency and dare the Fed to do anything about it.

Imagine California being the first to secede, off to wallow in its own hyper-inflated mess.