The 411 on I.O.U.s

By Jennifer J. Foster

Published: June 30, 2009

As California faces its new fiscal year and financial collapse tomorrow, state officials looking at issuing I.O.U.s to everyone from contractors to welfare recipients as a way to bridge the immediate cash gap.

GOP strategist Rich Galen sees some potential long-term problems with this short-term solution. Here’s a hint:

I mean, the only thing which makes a $10 bill worth $10 is if you and I agree it is worth $10.

So, if Californians decide that IOUs have the value of whatever it says on that paper, then the IOU becomes … currency.

Check out the rest of Galen’s column for the way he sees that story ending.

Also, if you need a quick primer on the financial situation facing the Golden State, click here for the 411 from the Associated Press.

And if you think you’re insulated from what’s going on in California because you live in Alabama, or Texas, or North Carolina or any of the other 49 states of the Union, think again.

From the AP roundup:

Q: How did the state get into this mess?

A: California’s problem is partly of its own making.

Lawmakers and voters have agreed to higher levels of spending over the years without identifying a dedicated funding source. Over time, that means the state’s general fund has had more obligations than it can afford to pay.

What?? Plunging headlong into deeper and deeper spending without paying for it?

Gee ... that sounds like another governmental entity I know.

Buckle up, nieces and nephews of Uncle Sam.