This topic is a first for the Darkside dear readers…..the giant blackhole that is California’s budget deficit.
Several major US banks have put out the memo that they will not be accepting California IOUS by Friday. California has a $24 billion budget deficit and will run out capital in the next month if the budget gpa remains unresolved or their IOUs are increasinly turned down by banks and financial institutions.
From the Wall Streat Journal…. http://online.wsj.com/article/SB124692354575702881.html
A group of the biggest U.S. banks said they would stop accepting California’s IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap. …
The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.
Ms. Mills of the CBA said some banks were concerned that there aren’t processes in place to accept IOUs, and also worried about fraud issues.”
The banks have a very legitimate reason to fear fraud. Many in the financial/bankikng sector are questioning the legality of the California IOUs. They are accusing California of creating currency, which is unconstitutional. The creation of currency is the sole province of the federal government. The IOUs awould also be a form of bailout, as the acceptance of IOUs by the banks would essentially mean the same as giving Cali hard cash.
A bailout would only delay the day of reckoning. California’s budget woes are entirely of their own making, and a bailout would not solve the underlying political problems in California. They tax too much and they spend too much, and their political class hasn’t got the guts to actually solve either of those problems, let alone both. A bailout would put California right back in the same place next year, and the year after that.
NOTE: California got into this mess by exponential growth in big government, massive deficit and runaway entitlement/welfare spending. The current federal governemnt is growing big government, incurring massive deficits and is proposing massive redistribution of wealth along with increased entitlements. Sounds like a fucking fantastic idea…..following California’s foot steps.