For those of you that have been following the fiscal meltdown in California you may be aware of the big bruhaha over California issuing “IOU’s” or Registered Warrants to the people California is indebted to and many banks have stated they will no longer accept IOU’s beyond July 10 (tomorrow) but what seems to be lost on everyone is that Federal Reserve Notes are nothing more than IOU’s too!

If you open your wallet and take out a $20 bill, you’re not actually holding money, you’re holding an instrument of debt no different than California’s IOUs.    There is an interesting question that’s arisen, what happens if Californian’s start sending in pieces of paper with IOU’s written on them instead of money (e.g. Federal Reserve Notes)?

In essence, California has created a secondary currency based on these “IOU” pieces of paper which few are willing to accept and perhaps it foreshadows what may happen if countries around the world stop accepting the Feds “IOU” Federal Reserve Notes.

Back in January & February, I wrote a post that a new currency would be needed to get out of this fiscal mess and I’m still holding to my thesis.  In many ways, California and other states are creating new debt based currencies with these IOUs and the problems with the economy STILL exists and aren’t getting much better.