California is out of cash. The New York Fed advises depositors of the new California IOUs to be wary. It states:
"Customers are advised to consult with their banks before depositing a registered warrant and should ask the following:
- Will the bank accept the registered warrant for deposit? Some banks may have arrangements to advance funds to depositors prior to the warrant's payment date.
- When will the funds be made available for withdrawal? These warrants will not be subject to the normal, federal check-hold limits and therefore could be subject to extended holds.
- Is there a potential to incur fees? The State of California will likely return unpaid any registered warrants that it receives before the payment date. Therefore, depositors of these warrants may be subject to returned-deposit fees if their banks attempt to collect these warrants before they are payable. In addition, if customers rely on these funds to make other payments, they may be subject to overdraft or bounced-check fees if the warrants are returned."
It is worth a read of the book about the Roosevelt days in the 30s by Shlaes called the Forgotten Man. It reads onto to what may be happening now. A well done book. In effect California is printing its own script. There most likely will be a secondary market for discounted script! Watch the fireworks.
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