California has reached a crisis point where it has run out of money to pay state employees. Governor Arnold Schwarzenegger and the state legislature have ruled out a tax increase to pay state workers. To deal with this impasse, California is issuing IOUs to its employees. The Bank of America has agreed to accept these IOUs as real money at least until July 10. Should California be allowed to create its own money?
Economists have longed toyed with the idea of each state producing its own money although none of the economists that I know actually recommend it. There could be red money for Missouri, blue money for Kansas, green money for Illinois, et cetera. That way each state could run its own monetary policy.
Tags: Governor Arnold Schwarzenegger