Saturday, June 27, 2009

California not instituting a Ponzi scheme

Governor Ponzi

The California Assembly this week was unable to pass emergency legislation which would have freed up around 4.7 billion dollars for the cash-strapped state through a combination of spending cuts and deferred payments for public schools. The cuts would have to be made by June 30, because the California fiscal year starts on July 1st, and by law, no cuts are allowed at that point. (I suppose, since Californians are more fond of voting than any other state, that it would take a ballot initiative to change that law). The deferred payments could have begun any time, although given the fact that the state will be bone-dry broke by July 28th, it's kind of a moot point.

So it looks like starting July 2nd, the state will begin issuing IOUs (California registered warrants) to vendors, contractors, local governments and taxpayers awaiting refunds, and, unless a large chunk of change is hidden in the state couch, to everybody else beginning July 28. Which is a heck of a lot better than deferring payments. Because with deferred payments, when you get the State on the phone they tell you the check is in the mail, but with these IOUs they send you a piece of paper in the mail that says the check is in the mail.

"Well, it does sound exactly like a Ponzi scheme, except that it's not," explains Governor Arnold Schwarzenegger. "Under the system California intends to implement, the recipient of an IOU will be paid just as soon as the state receives the revenue from a different source. In other words, July IOUs will be paid with August dollars, August IOUs will be paid with October dollars, and September IOUs will be paid with dollars we get hold of sometime in 2010. So don't call this a Ponzi scheme, because it's quite obviously not. A Ponzi scheme is against the law, for one thing, while our program is the law. And a Ponzi scheme requires an ever increasing flow of money in order for it to work, while ours... it's not a Ponzi scheme."

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