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Source link: http://archive.mises.org/10221/madoffian-finance-in-california/

Madoffian Finance in California

July 2, 2009 by

IOUs? . Idea: give California a central bank. Even better: give every citizen a central bank so we can dispense with this paycheck nonsense altogether.


Walt D. July 2, 2009 at 5:23 pm

Micawber on Insolvency
posted by Buce

But in fact, debt was a recurrent theme for Dickens; it pops up throughout his novels. Indeed, perhaps the most famous Dickensian debtor is not William Dorrit but Mr. Micawber, great friend of the eponymous author of David Copperfield. Even people who have never cracked a Dickens novel will remember W. C. Fields saying

Annual income twenty pounds,

annual expenditure

nineteen nineteen six,

result happiness.

Annual income twenty pounds,

annual expenditure

twenty pounds ought and six,

result misery.

Dickens readers apparently find this all touching and loveable: apparently the book remains about the best-selling of all Dickens novels. It is not entirely clear just what Dickens himself thinks. It is he who sketches out all this sunny innocence; yet it is he who lays out the evidence that Micawber, for those around him, is pretty much of a train wreck. Dickens does also mention “the boot-maker” who

had declared in open court that he bore [Micawber] no malice, but that when money was owing to him he liked to be paid. He said he thought it was human nature.

Human nature indeed. Compare with Micawber’s human nature at work as he undertakes to discharge an obligation to his young friend Traddles:

‘One thing more I have to do, before this separation is complete, and that is to perform an act of justice. My friend Mr. Thomas Traddles has, on two several occasions, ‘put his name,’ if I may use a common expression, to bills of exchange for my accommodation. On the first occasion Mr. Thomas Traddles was left—let me say, in short, in the lurch. The fulfillment of the second has not yet arrived. The amount of the first obligation,’ here Mr. Micawber carefully referred to papers, ‘was, I believe, twenty-three, four, nine and a half; of the second, according to my entry of that transactions, eighteen, six, two. These sums, united, make a total, if my calculation is correct, amounting to forty-one, ten, eleven and a half. My friend Copperfield will perhaps do me the favour to check that total?’

I did so and found it correct.

‘To leave this metropolis,’ said Mr. Micawber, ‘and my friend Mr. Thomas Traddles, and I now hold in my hand, a document, which accomplishes the desired object. I beg to hand to my friend Mr. Thomas Traddles my I O U for forty-one, ten, eleven and a half, and I am happy to recover my moral dignity, and to know that I can once more walk erect before my fellow man!’

With this introduction (which greatly affected him), Mr. Micawber placed his I O U in the hands of Traddles, and said he wished him will in every relation of life. I am persuaded, not only that this was quite the same to Mr. Micawber as paying the money, but that Traddles himself hardly knew the difference until he had time to think about it.

It’s something to reflect that Micawber’s cheerful, calamitous innocence who has more to do with public attitudes towards debt than any other character in literature.

Joe July 2, 2009 at 5:54 pm

“The bulk of the warrants – which will offer recipients an interest rate of 3.75 percent — will be issued to Californians waiting for their income tax refunds…”

That’s not a bad rate of interest. If the dollar doesn’t collapse and they’re able to eventually redeem them with dollars, people could stand to gain a lot from holding and cashing these IOU’s.

J Cortez July 2, 2009 at 6:26 pm

I used to live in California. As the housing collapse began and worsened over 2007, I moved. Seeing all the headlines recently is kind of a confirmation that I made the right choice.

Bruce Koerber July 2, 2009 at 10:08 pm

The economic upheaval has unearthed the thieves and the thieves’ dens.

newseamus July 2, 2009 at 11:06 pm

Exactly why Wells Fargo is willing to take them! Backdoor TARP bailout for California.

David Bratton July 2, 2009 at 11:41 pm

A “warrant” is an order to pay by bank check. The current use of the term is misleading.

How is the issuance of these IOU’s not a violation of the constitution’s ban on “emitting bills of credit”?

Lorenzo July 3, 2009 at 1:42 am

That reminds me the Buenos Aires province quasi-currency named Patacon in 2001…

Bruce Koerber July 3, 2009 at 6:03 am

Money and Ethics
Friday, July 3, 2009

Why Not Cash In Your Board Game Money In California!

IOU ! ?

I is for improper and immoral.
O is for onerous.
U is for unethical.

Are there individuals or institutions that are dumb enough to take these IOU’s?

Corruption is written all over this while the people are stuck in some strange sleep.


California Is Terminated July 3, 2009 at 9:46 am

Wasn’t Arnold Schwarzenegger supposed to “Pump-Up” the economy of California ?

I guess that Arnold can now say YOU’RE TERMINATED to California, LOL !

Nick Bradley July 3, 2009 at 11:43 am

From the State of California’s perspective, by far the shortest path out of their crisis is secession.

First, Californians pay over $60 billion more in income taxes alone to the Federal Government than they receive back in federal dollars; I believe that they run a massive deficit with the Social Security Administration as well — California ranks 46th in percentage of population over 65. California could use the $60 billion to patch the deficit and give every Californian a massive tax cut — they could almost eliminate the state sales tax entirely.

Second, the State of California could print their own money, making their debt servicing easier.

They would probably have to sign a status of forces agreement with the United States in order to allow US military assets to remain in California. Calif. would also have to purchase federally-owned military assets operated by the National Guard. The CA Nat’l guard would be come the state military and operate at about the global average of 2% of GDP.

Curious July 3, 2009 at 12:54 pm

“…give every citizen a central bank…”

Isn’t it another way of saying: Free banking, privately issued currency? Sounds like a good idea to me.

Nick Bradley: CA’s debt is in US$, so by converting revenues to it’s own currency, it would run an exchange rate risk. So CA could still default.

So why not just do nothing at all and let CA default? That should limit borrowing ability and thus reign in spending, no?

Mike D. July 3, 2009 at 2:44 pm

Idea: give California a central bank.
Not worth a Continental?

Stephen Grossman July 3, 2009 at 2:49 pm

Bernanke should be legally obligated to print money for anyone who asks. This is socialism at its best.

FTG July 4, 2009 at 2:31 pm

I fortunately received back my tax refund from the state of CA before they issued the IOU’s. A good thing, too, since I needed that money to move out of CA and leave the crazies festering in their own “green hell”.

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