When a company runs out of money with which to pay its bills, involuntary bankruptcy usually follows. But the State of California, which is expected run out of money at the end of February, plans to pay at least some bills with what amount to IOU's (call them "registered warrants" if you accept the sham).
The group likely to get them are taxpayers owed refunds on their state tax payments, also known as "voters." This is going to be amusing. Actually, this happened once before, in 1992. California's profligate ways have a long history. Back then, many banks accepted the IOUs as deposits. But who knows if they will again? Banks are not exactly anxious to put up money to risky borrowers these days. On the other hand, the big ones have plenty of taxpayer bailout bucks, and would be subjected to a lot of criticism if they didn't.
Last year I warned that a state bankruptcy was not unthinkable. That would be one way to get California out of its unsustainable gold plated pension obligations to state employees, not to mention the union contracts that have large numbers of prison guards making over $100,000 a year - not bad for a job that requires a GED level of education.
Absent shock therapy of some sort, California's fiscal madness will go on and on until the last taxpayer leaves.