What if California spreads?

Already in the news and anecdotally I'm hearing a currency crisis in the making with these IOUs. Banks and people are jockeying to try to avoid holding the IOUs and secondary and counterfeit markets are cropping up.

This is the nature of inferior currency- it can cause rapid displacements of money.

For example, let's say people have a choice to either take the IOUs or not, and if they refuse, they are paid in real money. Then, of course, almost everyone will refuse, preferring the real money. Those who take the IOUs are making a risky bet that either California will get a federal bailout, or will get its budget under control. Both of these propositions are highly uncertain, and don't justify the minor interest reward from the IOUs in my opinion.

But let's say, for example, California is able to force people to take the IOUs in return for goods and services, and the people cannot even refuse to work. Aside from the servitude issue, you might expect to see a displacement and hoarding of real money. Something similar to how high silver content coins started leaving the regular exchange market when they began minting lower quality coins. And if velocity of money is considered collapsed now, the current environment would pale in comparison.

And not only that, but I'd fully expect quality of goods and services to fall off a cliff- even in critical areas. Ask the Russian military, you can only appeal to peoples' sense of duty for so long. And you could expect similar secondary markets forming- like the Russian military and organized crime, how about the LAPD and organized crime? Or how about civil servants demanding bribes? Or paramedics stealing drugs? Yeah, yeah, there are corruption problems everywhere, but they can explode when people can't make a living doing their job but are still forced to do it.

And what if California gets bailed out? Well there's a long list of states lined up right behind it. And given my belief that the US is already bankrupt, how is that going to play out? I really believe the only reason things are holding together right now is there is nowhere for capital to fly to safety, and there is a tremendous amount of inertia in the dollar. It's very clear that the whole world is diversifying out of the US though, and I expect that to not only accelerate, but possibly accelerate catastrophically if the diversification out becomes disorderly at any point.