2016-04-28

Puerto Rico Will Default, Showing Us Where Our Nation is Headed

The governor has announced that Puerto Rico will default because it is mathematically impossible to do otherwise.

Puerto Rico will default because it doesn’t have the money to make the next payment.

According to Reuters,

Puerto Rican officials talked tough ahead of a major debt payment due on Monday, with the U.S. territory’s governor predicting default, and chances slipping for a restructuring deal with creditors.

Speaking to reporters on Wednesday, Governor Alejandro Garcia Padilla said “there will be a default on Monday,” adding, “I don’t think there is a deal on the table that avoids a default.”

Puerto Rico’s Government Development Bank, the island’s primary fiscal agent, owes creditors $422 million on Monday, a payment Garcia Padilla has said the bank cannot afford. The looming default is part of a broader economic crisis in the Caribbean haven plagued by $70 billion in total debt, a shrinking population and a 45% poverty rate.

If you want to understand what is going on here, you need to ignore almost everything the media says about how evil business is and instead look at what the politicians set up. You also have to ignore much of the “anti-bailout” rhetoric because it is deceptive.

For example:

Bankruptcy law can and is sometimes abused. But the bottom line is that if a debtor doesn’t have a way of paying a creditor, you might as well admit it. Puerto Rico should never have been allowed to go into debt. But they were and there is nothing that can be done about it now. It is unfair to the savers who bought bonds, but that doesn’t change the facts. The government enabled Puerto Rico to sell bonds and allowed them to be fraudulently marketed.

To the extent that Wall Street had a hand in getting legislation passed that allowed them to sell unsustainable debt without any legal liability, they are guilty. But commentators are condemning businesses as if this is all their fault.

The John Oliver video below is typical. While he touches on the role of the politicians, he saves all his invective for businesses for not paying taxes. But there were no taxes! The only reason those businesses came to Puerto Rico in the first place was because of the low taxes. If Puerto Rico had a higher tax rate, then those businesses would have never have come there.

These businesses are no more guilty than the many people now fleeing the island.

Despite John Oliver’s liberal agenda, his long rant is informative to the discerning reader. (There is bad language, however.)

The weirdest part of the story in the video above is that Puerto Rico was carved out as an exception to Chapter 9 bankruptcy. In deciding if Puerto Rico should have access to bankruptcy ask yourself what you want for America when our nation defaults (that’s when, not it). Do you think our government’s creditors should have the power to force us to raise taxes? Or do you think we should be permitted to restart with a clean slate?

Puerto Rican children, who will be saddled with paying off the debt (which is beyond their ability to repay anyway), were not the ones who decided to borrow the money. They should not be enslaved.

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Joe Scudder

Joe Scudder is the "nom de plume" (or "nom de guerre") of a fifty-ish-year-old writer and stroke survivor. He lives in St Louis with his wife and still-at-home children. He has been a freelance writer and occasional political activist since the early nineties. He describes his politics as Tolkienesque.

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