Hi Adwebster,They are already doing this - they are issuing IOUs...

Hi Adwebster,

They are already doing this - they are issuing IOUs which are currently redeemable for cash at banks. They are just like the bonds talked about in this article - since they have a 3 percent interest rate - or something thereabouts. And as far as I know - there is no speculative market for them, they can only be used on the ground.

Of course - they are not being used for public works projects... and won't expand the production capacity... so will remain inflationary. From Bernanke's point of view, this is probably a good thing. LA might solve it's problems by virtue of this budget deadlock, not in spite of it. That would be supremely ironic.

If banks start refusing to redeem IOUs - watch for Bernanke stepping in to purchase them. Such a refusal will be tantamount to a collapse in confidence in LA debt... and might shut down the corporate debt market once more (out of fear of who is holding LA debt).