The State of California, virtually out of cash, started issuing IOUs, formally known as registered warrants, last Thursday after lawmakers failed to agree on a package of spending cuts to close a budget deficit that has now grown to $26.3 billion.
Since last Thursday, the state has issued nearly $230 million worth of these IOUs and there is still no budget agreement in sight.
Note: California plans to pay an interest rate of 3.75 percent on these IOUs when they mature in October.
On Monday morning (this week), a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce results - thus leading Fitch Ratings to drop California's bond rating to BBB, down from A minus the same day.
Now the problem is: Major banks (including Bank of America, Citigroup, Wells Fargo, J.P. Morgan Chase, and others) are becoming scared and plan to no longer accept these IOUs after Thursday this week (window of acceptance to close on Friday).
Bloomberg report on Bank refusal of California IOUs
Fox Business report on the same
If you want to become more informed on this IOU issue, Martin Weiss has a recent article warning of a looming, major California Bond default (Link)
This may get ugly folks
Randy
4 comments:
Speaking as a California resident, I want it to get ugly.
Alright, disclaimer: I'm debt free and prepared... but nevertheless, let's stop this farce.
For years California has been rolling over its debt, effectively borrowing on one credit card to pay off another. Let's face the dragon
and either live or die.
Major, structural changes need to take place, and ...it's not more taxes.
When California defaults the rest of the nation will panic... sit back and watch... it will finally hit everyone how bad this all is... about the same time swine flu hits hard... about the same time the stock market plunges again... it is going to be ugly this fall. So glad you're back Randy!
Hi Randy,
Welcome back. This is the first I have checked in a few weeks.
I understand that there are pawn-shark-type investors willing to buy the California IOUs for 80 cents on the dollar. This theft upon the working American desperate to make payroll, and bills are taking a hit. This must be Arnold's way of killing the worth of the middle class business owner and others.
California is the 8th largest economy in the world and Arnold cannot pay his bills? Then why is it that North Dakota has a $62M surplus in their budget? It is because N.D. has their own state bank called the State Bank of North Dakota. All state revenues go into this bank and are then loaned out for various projects at varying rates depending on the origin of the projects. They have been operating since 1919. Check it out on www.webofdebt.com
jerry
http://www.badlandsjournal.com/2009-07-09/007312
Check it out.
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