Posted by: Dirk | September 28, 2015

California I.O.U.s

The NY Times has an article on the I.O.U.s used in California in July 1992, which are mentioned in the interview. Here is an extract:

Its economy racked by recession and its political leadership paralyzed by stalemate, the State of California ran out of cash today and began to pay its bills with I.O.U.’s for the first time since the Great Depression.

State Controller Gray Davis sent out the first 12,000 of the I.O.U.’s after the Democratic-controlled Assembly failed to reach agreement with the Republican Governor, Pete Wilson, on how to erase a $10.7 billion shortfall in the new state budget before the fiscal year began at 12:01 this morning.

Major banks said that for now they would honor the notes as they would regular checks, but they did not say for how long. Sooner or later, if no agreement is reached, the largest state will close schools, parks and libraries and curtail vital state services.

This story links with last week’s article on Adam Smith’s story of the prince choosing paper money as the thing that extinguishes tax liabilities. It is always useful to know your Adam Smith!


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