Sunday, May 15

Puerto Rico defaults on debt; Congress debating bill to bail 'em out, denies it's a bailout

Wanna see how blazingly fast disaster can bite ya--even when the numbers that made it inevitable have been known for years to anyone willing to look?

You probably don't, of course, because that would show you where we're headed.

But the fact that you're not interested matters not a whit:  You may not give a damn about the chasm, but the chasm will swallow you regardless.

This particular disaster is:  The tiny, Democrat-run U.S. territory of Puerto Rico is $70 billion debt.

That's about the size of California's debt, but in an economy about 1/2000th as large.

You may wonder how in the world that tiny territory's debt could have gotten so huge.  Or why any bank would loan money to a territorial government so wedded to spending far, far more than it took in.  Take a look:

1. Government overspending:  Actual states are required to at least write a balanced budget every year.  But Puerto Rican pols didn't.  Instead they took advantage of the island's limbo status -- it's not a state, it's a U.S. territory.  So for years the island's pols spent far more than they took in from taxes.

The deliberate overspending was made possible by a loophole:  an ambiguity in translation of a single Spanish word into English in the island's 1952 constitution.  It hinged on the interpretation of the phrase "recursos totales" -- total revenue or total resources?  Choosing the second meaning allowed the government to fund normal operations (e.g. education, policing, health care, etc.) by borrowing--just like our federal government.

Not surprisingly the politicians chose the interpretation that let them spend more money, enabling them to spend more generously on salaries for public employees, welfare and the like.  Again, like our federal government.

"Unexpectedly" [sarc], the territory's debt skyrocketed.  In just the the past 8 years it soared from an already astonishing $43.5 billion in 2006 to over $70 billion by 2014. (The island also has over $40 billion in unfunded pension liabilities).

Now, after threatening default for months, the island's pols have defaulted, missing a debt payment variously reported as $340 million to $400 million.

Uh-oh, now what?

Now this: our shitty, corrupt congress is debating a bill that will bail out the corrupt Dem pols who borrowed Puerto Rico into poverty.  Oh, they won't call it that, of course.  In fact they'll loudly, strenuously, shriekingly deny they've done any such thing.  But instead of listening to them, try watching what actually happens:  the island's Democrat-run government won't miss a single welfare payment or paycheck to a politician or public employee.  Total spending won't drop more than a token percent, if that.  Taxes and revenues won't rise.

You may well wonder how the hell the island's budget will suddenly balance if no cuts in spending or increases in taxes.  They spent $26 billion more than they took in, just between 2006 and 2014, and yet somehow now, with only a percent of spending cuts, they expect you to believe that suddenly the government is no longer spending beyond its revenues?  No way.

The secret will be that congress will have quietly signaled that they'll bail out lenders.

You don't believe that, of course.  Congress would never lie to you about something so serious, any more than the emperor would.  But if you don't believe it, come up with a plausible answer to the question I just posed.

You can't, of course.  But don't worry:  No one in congress expects that more than a handful of Americans will penetrate this mystery.  And even if everyone did, and was mad as hell, why would members of congress care?  What could you do about it?

But it gets better [sarc]:  If they bail out Puerto Rico, next up will be Shitcongo, then Detroit, Newark and  California.  The national debt will quietly mysteriously double.  And no one will remember what it was before.  Hell, very few Americans actually know what "a billion" means anyway.

The RINOs in congress will go along with all of this, because not one of 'em has the balls to hold Dem pols accountable for spending far more money than they have.  Dems and RINOs have always bought votes that way, which gets 'em re-elected year after year.  Why would they want to change what is to them a winning game?

2. Congress exempted island business from federal tax but later changed the law
Not surprisingly, congress is partly to blame for the mess:  It passed a law exempting certain industries from federal corporate taxes.  This made the island attractive to companies like the pharmaceutical industry.

But in the mid-1990s Congress began rolling back those tax exemptions, phasing them out entirely in 2006.  Though no numbers have been cited, it's claimed that the island's economy tanked after this.  It's claimed that good private sector jobs were lost and tax revenues dropped.  In any event the economy has shrunk almost every year since.

Also, the Merchant Marine Act of 1920 mandates that only U.S. vessels can take goods between Puerto Rico and the U.S. mainland. This increases prices on the island and makes goods produced in Puerto Rico more expensive than those from Caribbean nations that can use cheaper shipping.

3. Skilled workers have left
With unemployment at 11.8% it's getting harder and harder to find a job.  As a result, residents are fleeing, packing up and moving to the mainland U.S.  [Gosh, a lack of jobs prompt people to move somewhere else?  Who could have seen that coming?  Certainly not the emperor or his Dept of Labor.]

In particular, professionals and skilled workers are leaving. An average of a doctor a day (sometimes two or three) leaves the island. Skilled professionals like doctors can earn more on the mainland, and don't see the economy recovering.  Families with young children -- the future workforce -- are also departing. This will continue to cut sales tax and income tax revenues--a vicious circle.

Many experts believe some sort of debt restructuring will be necessary. It may mean delaying payments to creditors or paying less than 100% back. The problem is Puerto Rico is in legal limbo. Neither the island nor the creditors want to budge much in negotiations until they know what the laws are for sure.


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