California Close to Bankruptcy

California might issue IOUs to state suppliers for the first time since the Great Depression, Bloomberg News reports:

California, the world’s eighth largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said.

In a letter to legislative leaders Dec. 2, Genest said the state “will begin delaying payments or paying in registered warrants in March” unless an $11.2 billion deficit is closed or reduced. California, which approved its budget less than three months ago, may run out of cash by March, state officials say.

Governor Arnold Schwarzenegger warned that he may issue the warrants, which are a promise to pay with interest, to suppliers and contractors as the seizure in credit markets may make it too costly to borrow.

“It’s getting worse very quickly,” Schwarzenegger, a 61- year-old Republican, told reporters Dec. 1 after declaring a fiscal emergency and ordering the Legislature into a special session to find ways to close the deficit. “It’s like an avalanche in that it gains momentum. And that’s what we’re in right now, so it’s a real crisis.” […] 

California doesn’t have a revenue problem. It has a spending problem. State officials, including Gov. Schwarzenegger, refuse to curb their appetites and that’s why they’re in this mess.

Would state suppliers have to accept the IOUs? Who knows. Maybe they could sell them to speculators like George Soros.