California IOUs are beginning to infringe on the Federal Reserve's exclusive monopoly regarding legal tender fiat currency. On 23 August 2010 California bill A.B 1506 passed 9-0 and contains a provision that "a state agency shall accept from a person or entity a registered warrant issued by the Controller that is endorsed by that payee , at full face value".

This failing State is now one step closer to the financial abyss event horizon and the gravitational pull of economic law continues exerting tremendous pressure.

[pullquote]California's budget deficit is 1.267% of the United States' while its GDP is about 13%.[/pullquote]UNITED STATES CONSTITUTIONAL MONETARY SYSTEM

The language of the Constitution is both exceedingly simple yet extremely profound in its consequences. In Article I, Section 8, Clause 5 and Article I, Section 10, Clause 1, silver and gold coin are adopted as the exclusive money and currency of the United States. The term 'dollar' is written twice in the Constitution in Article I, Section 9 and in the Seventh Amendment. But what is a dollar?

Constitutionally, a dollar is a silver coin containing 371-1/4 grains of silver. Thus, the legal value of silver coinage must be proportional to the weight of silver contained and any gold coinage must be proportional to the exchange value between silver and gold based on the exchange rate in the free market.

Despite these clear Constitutional prescriptions the commonly accepted instrument in the United States is the Federal Reserve Note. The market share for Federal Reserve Note coupons, emblazoned with images of sacrosanct sociopaths like Abraham Lincoln or Alexander Hamilton, is increased because they are given preferential yet unconstitutional treatment under 31 USC 5,101-5,118. Now California appears to be attempting to infringe on this hallowed monopoly. The revision history has largely excised the true Abraham Lincoln facts.

LEGAL TENDER FIAT CURRENCY

Fiat currency is a currency issued by a State which is neither legally convertible to any other thing nor fixed in value in terms of any objective standard such as gold or silver. Thus, fiat currency is without intrinsic value.

Because fiat currency is usually just some form of little colored coupon with no intrinsic value the State often has to resort to violence to increase liquidity. These immoral market interferences to enhance the little colored coupon's market share generally consist of four prongs: (1) making the currency the unit for payment of taxes and fees for public expenditures, (2) by declaring the little colored coupons 'legal tender for all debts, public and private', (3) imposing taxes on competing currencies and (4) by outlawing contracts payable in any other form of money or currency, especially currency that does not require force to be accepted such as commodity money like gold or silver.

CALIFORNIA IOUs - A THREAT TO FEDERAL RESERVE NOTE COUPONS

By issuing IOUs and passing a bill requiring state agencies to accept them at full face value, California will be infringing on the Federal Reserve's Congressionally granted monopoly. Like the Kelantan State in Malaysia that is encouraging the use of gold and silver coins in ordinary daily transactions this seemingly small action actually poses a significant threat to the Federal Reserve Note's status as the world reserve currency.

Why? Because the next few steps California could easily take is to either declare the IOUs legal tender for all debts public and private or impose taxes for using FRN$s in California or completely outlaw the use of FRN$s in California.

Given that California GDP is the largest of any US State and the eighth largest economy in the world, between Italy with $1.76T in debt and Russia, it seems fairly perplexing that they are worried about a measly $19B budget deficit when the United States budget deficit is about $1,500B. In other words, California's budget deficit is 1.267% of the United States' while its GDP is about 13%.

How could California access its 'credit worthiness' when compared with other sovereigns like Italy with its nearly $2T in debt? Slap a bear on its IOUs, call it a California dollar while making it redeemable in silver, pass a bill to make California dollars legal tender and then impose taxes or prohibit the use of Federal Reserve Notes in California. Indeed, in conjunction with H.R. 4248 The Free Competition In Currency Act every State should begin issuing their own currency.

IRS PROTECTION OF FEDERAL RESERVE'S MONOPOLY

The Federal Reserve does not want any competition to its little colored coupons in the currency market. Want to know why gold rises at most only about 30% per year? Its the gold price suppression scheme as uncovered by GATA in conjunction with IRS Topic 409 where the net capital gain of collectibles, such as American Eagle gold coins which are legal tender under 31 USC 5,103, are taxed at a maximum rate of 28%.

But either way California is being pulled into a situation it cannot recover from. How will California fund its chronic budget deficit and debt when can neither be surreptitiously bailed out by the federal government via Citigroup nor print its own California dollars?

CONCLUSION

The Federal Reserve's monopoly over the currency market is increasingly facing overt and covert threats. The more credible the threats the less demand for its little colored coupons. But the Federal Reserve Note is merely the King Ghost of currency illusions and has no substance compared to the Ancient Metal of Kings, gold, or Tears of the Moon, silver.

Countless fiat currencies have come and gone through the ages while these elements have always been worth something. The Great Credit Contraction continues and even if there is a California dollar created the smart holders of capital will bypass it and move directly into the monetary metals.