A lawsuit filed in California alleges that the State is issuing IOU's in payment of its debts, in violation of applicable laws - and then expecting the recipients to pay tax on the IOU's, which can't be exchanged for cash!
The lawsuit alleges, among other claims (link is to a PDF document):
2. Recipients of the IOUs are unable to redeem them for face value at banks or even use them to pay debts or other financial obligations owed to the State - the very entity that issued them. Further, recipients of the IOUs are unable to sell or transfer them to anyone willing to buy them (for even a reduced price) due to the costs and risks associated with complying with federal securities regulations.
3. The interest rate the State forced upon recipients of the IOUs does not reflect the rate an open market would command from a borrower with the abysmal credit rating of the State of California. Essentially, the State could not finance continued operations through a bond issue or commercial lending because it could not afford to pay the price for that credit and so has forced those small businesses with government contracts to bear the cost of continued financing at a deep discount.
4. Notwithstanding the fact that the IOUs issued by the State have essentially no market value, recipients of the warrants are required, according to the State, to continue providing goods and services to the State in accordance with the contracts the State has now breached. By requiring recipients of the IOUs . . . to continue providing goods and services to the State without payment, the State has performed an unconstitutional taking of private property without just compensation.
5. To make matters worse, the State itself refuses to accept as payment for taxes and other financial obligations owed to the State, any of these IOUs. Yet the State is treating the warrants as 'cash' upon receipt by Plaintiff for purposes of collection of income taxes, and the like. Essentially, the State has issued Plaintiff a worthless piece of paper for purposes of paying the State itself, or anyone else, yet assigns that paper a value for the purpose of imputing income to the recipients and requires them to pay taxes on its State-assigned value.
There's much more at the link.
I can't help being furiously angry at the financial shell-game California is playing with its people, its businesses and its contractors. I'm watching for similar shenanigans from Washington, as the colossal financial mismanagement currently being perpetrated by the Administration, Congress and the Senate finally comes home to roost over the next couple of years.
Let's not be complacent about this, and say that it can't happen to us. California's merely the worst example within our borders - there are other States in a financial condition almost as bad. Internationally, too, there are financial basket-cases. Consider what Argentina's government did to private pensions when it ran short of money to hand out to its supporters. It simply nationalized all private pensions! Those who relied on that money to fund their retirement were essentially robbed blind, handed government IOU's with no value, which are now worthless. Argentina has now spent all that money, and is broker than ever. It's just grounded its Air Force and slashed its Defense budget in a last-ditch attempt to get more money from somewhere, but that won't last for more than a few weeks.
If you, as an individual, have money saved, or are owed money by the State, politicians will look on those funds with rapacious eyes. They'll try to figure out ways to take them from you, even if that means replacing them with worthless IOU's, as California has done. If you think they won't, there's nothing much I can do to help you. You're living in cloud cuckoo land . . . and you're about to wake up to a nightmare.
Let's make sure we don't get Californicated (financially speaking) in the other 49 States of the Union.
Peter
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