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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
My latest blog – California IOUs are not currency â€¦ 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
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
William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle
New South Wales, Australia