Puerto Rico has AT LEAST $73 Billion in debt and they can’t pay it back.
Puerto Rico has economic disadvantages. Energy prices are high and there are other challenges.
So what did Congress do? Congress made Puerto Rican bonds available completely tax free.
This should have caused an immediate alarm to investors. After all, if Congress is doing special favors to make bonds look attractive, then that must mean that Puerto Rican bonds are otherwise unattractive. In many cases reducing taxes causes growth, but in this case, the growth was the expansion of unsustainable debt.
Of course, the government interference also involved a corrupt group of profiteers. These would be people who knew the bonds would hold up for awhile, and be extra profitable before the Puerto Rican government. These people, however, while being careful themselves, would also need to push the idea that the bonds were a reliable long-term investment. That way they would have people stupid enough to buy the bonds from them. Welcome to the Wall Street Corruptocracy!
So now, the music stops and everyone struggles to get what remains. According to NPR,
A report obtained by NPR paints a bleak portrait of Puerto Rico’s economic future, saying its deficit is much larger than previously thought.
“Puerto Rico faces hard times,” says the report which was commissioned by the Government Development Bank and written by three former and current International Monetary Fund economists. It is to be released on Monday.
“Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt. Financial markets once looked past these realities but have since cut off the commonwealth from normal market access. A crisis looms,” it says.
Following the report’s release, Governor Alejandro Garcia Padilla is preparing to give a major speech, in which he’s expected to say Puerto Rico can no longer afford to pay off its $73 billion in debt on time.
The radio interview that accompanies the NPR story makes it clear it is highly likely that the $73 billion figure is a whitewash.
Puerto Rico has borrowed money to pay for “pensions and government services.” Now the island governor writes in the New York Times that they can’t pay those debts. “This is not politics, this is math.”
The problem is we have a population in Puerto Rico and virtually all fifty states that simply don’t believe that math matters. They believe politics can always make wishes come true and, when they don’t, it is due to evil, stingy, politicians. There are always people willing to win political office by feeding that fantasy back to the voters. “Yes, you are right! You can get free government services and pensions can be generous without any way of paying for them.”
Thus, any politician who might be tempted to be realistic with the voters and who might try to avert a future economic catastrophe loses office to the politicians who lie and cheat.
Detroit is already there. Soon Chicago, and Illinois, and other cities and states are going to join Puerto Rico even as Greece collapses and then other EU countries follow.
Math is math. Puerto Rico simply must live without those government services. Those pensions are disappearing. It will happen all over the world.
And while people suddenly feel their standard of living cut down to a fraction of what it was, those who profited from the fraud will claim that we need to obey and follow them in order to “recover the economy.”