Sunday, July 26, 2009

WSJ Acknowledges California IOUs As A Currency; Schwarzies Take A Place On The Podium Next To Clamshells

As California announces a budget that gets them out of crisis...for nine is likely that Schwarzie issuance will soon take a temporary respite (TILB already predicted that this budget will not hold for a variety of reasons).

It is at this juncture in history that the WSJ has decided to reflect on the implications of Schwarzies. The article even goes so far as to employ an uncited use of our phrase "Schwarzenegger Scrip" (we challenge you to find a similar reference older than ours to said currency). The Journal talks about where Schwarzies stand amongst the various scrips that were issued by state and local municipalities during the Great Depression, including certain places that issued clam shells with hand written denominations (if only TILB could have been there reporting...).

Ironically, clam shell currencies held their real value much better than our shitty fiat dollars (lovingly referred to by TILB as "Bernankes"). Per the WSJ:
Two towns in California -- Crescent City and Pismo beach -- circulated scrip printed on clamshells. [The] 10-cent note was issued by the Crescent City Chamber of Commerce. It's worth about $500 today.
And do you know why it held its value (obviously a 5000 bagger is better than "holding its value", even adjusted for dollar debasement/inflation)? Two related reasons explain the return: 1) novelty, which we do not hope for modern currencies to replicate; and 2) scarcity. Sadly, Comrades Obama, Bernanke and Geithner do not seem to fully appreciate the latter reason (or, perhaps more accurate and frightening, they do understand). Rather than talking about holding the volume of dollars somewhat stable, they speak of dropping freshly minted dollars on the populous from the cargo bed of helicopters.

Gold, a currency that has been accepted throughout time fairly universally, allows natural supply/demand forces to function as its central bank. In essence, gold has a built in scarcity function - finding, mining, refining, certifying, and establishing a reputable "brand" are expensive. As such, these functions (which increase gold supply) occur in modest, fairly stable amounts over time, leading to a dependably scarce, value protecting, and widely accepted currency.

The article goes on to inform us that California State Controller Chiang may continue to issue a few more Schwarzies as the implications of the budget are digested:
Since California ran out of cash early this month, it has issued more than 194,000 IOUs, with a total value of $1.03 billion. They are redeemable in U.S. dollars on Oct. 2, or sooner if the state comes up with the money. The legislature on Friday approved a plan to close a $24 billion budget gap, but officials say it could still take a few weeks to analyze the state's cash situation and resume giving creditors checks instead of promises.
Prediction: the state will not come up with the money sooner than Oct. 2nd. Paying them off early would be a negative arbitrage and thus they'd never do it.

If they had half a brain and a good sense of humor, they'd finance old Schwarzies with new Schwarzies and really establish them in circulation.