As an armchair economist, I always find it interesting to watch a state collapse into financial coma. This year's budget crisis in California is especially captivating: In addition to its financial and economic aspects, it also raises fascinating questions under the US constitution. At least that's how it appears to this armchair jurist. I'm interested in getting some input from real jurists.
The US Constitution provides: "No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts." US Constitution, Article 1, Section 10
. California, depleted of cash, is currently paying its bills
in dollar-denominated IOUs, which it intends to redeem starting October 2, 2009. Is California violating the US constitution?
On a closer look, this question seems to expand into three separate ones:
- In the sense of the US constitution, what is the legal tender here? Is it California IOUs, or is it US dollars (which the IOUs are denominated in)?
- If the legal tender is California IOUs, how does that not violate the US constitution?
- If the legal tender is US dollars, how is California not breaching its contracts, which presumably specify a payment of dollars now, and not on October 2?
I would be grateful for any light you could shine on this.