Letter to the Governor of California

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Letter to the Governor of California

Dear Governor Schwarzenegger

I note that the State of California is planning to issue IOUs
(registered warrants) from tomorrow (July 2) to ease your cash situation
in the face of the political dispute you are having over the budget with
the Democrats.

My latest blog – California IOUs are not currency … but they could be!
– analyses this situation and suggests that you “tax-empower” these IOUs
– a move that will radically enhance the options available to you. You
can read the blog here

In summary:

1. It would be economic madness to start cutting your deficit now given
the extent of labour market deterioration your state is currently

2. The present plan to issue IOUs will hurt the most disadvantaged
members of your community because the warrants will not be readily
tradeable and it is unclear whether banks will be prepared to hold them
for the interest payment on redemption (that is, cash them).

3. You can easily eliminate this disadvantage by making the IOUs
eligible for payment of Californian state taxes and fines. This one
change to your current plan will allow you to create your own sovereign
currency and the IOUs will become widely accepted within the community.
Even those who are not being directly paid in IOUs would be happy to
hold them because they would realise they could extinguish their tax
obligations to your government using them.

4. You could then use these IOUs forever for state purchases as a
substitute for USD and avoid issuing more debt.

5. You will also be able to directly employ the 2.1 million Californian
citizens who are currently unemployed with the IOUs and start using this
idle labour to advance public purpose via community development

If you need any further advice on this please do not hesitate to
contact me.

best wishes

William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle
New South Wales, Australia


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4 Responses to Letter to the Governor of California

  1. warren mosler says:

    the reason they hesitate to take them for tax payment is because they fear getting that many fewer ‘real’ dollars.

    however the new spending power far outstrips that effect by definition

    they also might have bond indentures they would be concerned about as the bond payments are based on $ revenues


  2. barton says:

    I sent the Governor’s office an email asking them to take Bill’s suggestion seriously and urging them to get in touch with him. Of course I am a nobody and being who they are, they will probably make Bill out to be some crackpot, but hey, it’s worth a shot! It really could have a dramatic, and positive impact for an economy as large and important as California’s.


    Matt Franko Reply:

    FWIW I did a similar email.

    Here is the link to Arnold’s email correspondence system if anyone else wants to show support for these ideas.



  3. Jct: There’s nothing wrong with small denomination California State IOUs if I or anyone else can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes and which everyone accepted as useful currency. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
    U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at http://youtube.com/kingofthepaupers
    Too bad California State IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California State IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.


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