How can I buy some of the State of California’s IOUs?
No, I don’t want to collect them. I just want a better investment than my current money market fund, which pays less than a quarter of one percent.
Calfornia IOUs pay interest at the rate of 3.75 percent until they are cashable Oct. 2.
National Public Radio seems to think they are numismatic items. They inquired here as to who would be a good guest on one of their programs to talk about it. We mentioned Neil Shafer, who is a well-known writer of the book on Depression scrip.
So, are these IOUs numismatic?
I would have to say yes. Are they scrip? I would have to say no.
Scrip is a money substitute. It is issued in commonly accepted denominations, like 10 cents, 25 cents and 50 cents in the past. Scrip today would more likely be convenient at $5, $10 and $20.
The California IOUs are more like checks. Checks are numismatic. They are are collected by a small group of hobbyists, though they are more popular with stamp collectors who love the 19th century checks with revenue stamps on them.
Each IOU is made out to somebody like a check. The amount varies like a check. I read online that a batch of 101,930 IOUs was issued with a combined value of $389 million. That gives the average IOU a value of $3,816.34. That is not something I would take down to the Crystal Cafe in Iola, or its California equivalent, to pay for lunch like I would scrip.
As a collector, it would be more fun if California were issuing scrip, because it could be collected over time. But creating such an item would cause delay and in general be much less convenient to the state. Imagine trying to plug a $26 billion budget gap with $20 face value scrip? That would not be convenient and would likely be unworkable.
This would be true even if they put an image of California’s governor on the notes with a genuine Arnold Schwarzenegger autograph. I know he couldn’t sign that many. It is impossible, but hey, the state needs ideas, doesn’t it?
How about a quick exchange of checks? I send California my check for $1,000 and I get their IOU for that face amount plus the interest that is paid at the 3.75 rate. Simple, right?
Californians might be disillusioned with their government, but I trust it enough to expect to get paid Oct. 2.
I did not hear any National Public Radio discussion, so I do not know how it turned out. But in a way, it is nice to be thought of. Imagine. We are in the worst economic downturn since the Depression and news gatherers want to talk to collectors. That is a silver lining in the cloud.
It also makes a nice change from writing about gold. Gold is eternal. It is important, but as King Midas found out, when everything turns to gold, life gets deadly.
Maybe my home state of Wisconsin will take a cue from California. At least here I know where the governor is so I can go demand repayment if something goes wrong.