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Puerto Rico files for biggest ever U.S. local government bankruptcy

reuters.com

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Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#71

Post by mgbmtl »

emodendroket wrote: post #30
creaghpatr wrote: post #11

A few months ago I discussed this with friends and suggested the government subsidize cheap flights to Puerto Rico, say $30 for a round trip flight from Atlanta, scaled up depending on domestic distance. This would cost taxpayer money but would drive a ton of tourism to Puerto Rico (albeit temporarily) and pump a bunch of money into their economy, defibrillator style. I've never been there but given a cheap round tri…

Probably recreating the tax climate that attracted pharmaceutical manufacturers and was allowed to lapse would be more effective than trying to gin up tourism (although in my opinion probably that wouldn't be all that helpful either).

Lowering taxes only works if you can combine it with something else that will keep the companies in place afterwards, such as a critical mass of specialized workers, infrastructure, etc. Otherwise it's just playing the downward-spiral game in a saturated market.

The federal government should create a 10-year plan to subsidize PR and fix its economy/democracy from the ground up. If you look at Eastern Europe, it takes a long time. One specific hack won't fix this, that's magical thinking, and usually from corrupted politicians turfing their funders.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#72

Post by learc83 »

rrggrr wrote: post #46

> As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not have. Every time every one of us votes for any politician who favors any deficit spending - and this is most of us - we give aid and comfort to this outcome. We all want fiscal responsibility until its a cause that touches us emotionally.

There's a difference between a state, municipality, or territory engaging in deficit spending, and a sovereign government that controls their currency doing the same.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#73

Post by savanaly »

jlg23 wrote: post #54
savanaly wrote: post #23

Earlier quoted context omitted.

That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't…

> If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't it be a better equlibrium? What makes you think Puerto Rico did not try? How much longer will the poor have to suffer until you accept they've learned their lesson? Some facts about Puerto Rico: Puerto Rico is poor, almost half of the people live below the poverty line. The…

I wasn't making commentary about Puerto Rico, except in taking exception to the poster above me who was pushing the line that not only should Puerto Rico default on their debt, they shouldn't even regard it as a bad thing that they have to, since after all the people lending them the money knew it might never get paid back and built it into the interest they charge.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#74

Post by SEJeff »

rrggrr wrote: post #42
mirekrusin wrote: post #9

Should I cash my USD now or should it be safe for few more months?

Money isn't a mechanism for the exchange of sovereign assets anymore. That role has been supplanted by debt. You wouldn't cash in your USD anymore than you would trade in your car because petrol prices have fallen. You might cash in your US Treasury bonds. I say might because there is no flight to safety from US bonds at nation-state scale. Treasuries are the only game in town. If all this is confusing then here's an…

So perhaps the successor to the successor to bitcoin, in another 10 or so years?

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#75

Post by mgbmtl »

jcranmer wrote: post #22
djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

Yes, being a state would solve some of these fiscal issues. It's even been discussed for the past few years that this debt situation might be the thing that pushes Puerto Rico to actually become a state. The major problem is that Puerto Ricans don't actually want to become a state. In the various referendums, the majority generally goes for status quo, followed by statehood, followed by independence. In 2012, the ref…

Just curious: what's the main argument against statehood? Federal taxes?

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#76

Post by kchoudhu »

Animats wrote: post #25
djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

There's a statehood faction, an independence faction, and a big "don't upset the gravy train" faction that likes the status quo. If Puerto Rico became a state, US Federal personal income taxes would be imposed. If Puerto Rico became an independent country, immigration to the US would be stopped. There have been referendums on this. The next one is June 11, 2017.

I know a very wealthy hedge fund manager who just moved to PR in order to minimize (read: eliminate) his Federal tax burden.

Of course, as the current situation demonstrates, not being under the Federal taxation umbrella has certain disadvantages.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#77

Post by vanadium »

masterleep wrote: post #45

Illinois badly needs to do this as well.

First, you'd need the Illinois legislature to stop arguing and navel-gazing about the long-standing budget impasse and actually do something about it, for better or for worse.

This seems unlikely.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#78

Post by AnimalMuppet »

toomuchtodo wrote: post #16
bpodgursky wrote: post #13

Earlier quoted context omitted.

> and the federal government will backstop the states I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle. I'd rather see failures and ba…

> I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. Agreed. That shift is going to happen though. Seniors are not a cohort you can ignore. They vote like clockwork. > I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medic…

Sure, seniors vote. Don't assume that the seniors in, say, Texas are going to be in favor of higher taxes in order to rescue pensions in California and Illinois, though.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#79

Post by dluan »

6stringmerc wrote: post #35

All that text about Puerto Rico's financial difficulties and not one mention of the rampant fraud that spun up the debt from a reasonable amount to the $XB that is likely to default is the result of graft, corruption, and fraud enabled by many US and international actors. Want to take a guess how many of those responsible for the transactions, debt issues, and back-office fund transfers are in jail and all their asse…

its moral hazard by many parties, but after what happened in 2008 and the lack of punishment that should have come to wall street, the financial system learned that they could get away with anything.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#80

Post by zeteo »

ThrustVectoring wrote: post #31
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

>Lots of people are leaving the island, which just compounds the problem (less revenue). This is one of the effects of Puerto Rico being subject to US minimum wages. Since it's illegal for large portions of the population to receive pay commensurate to the value they're able to produce, and it is legal to move to the US, guess what folks do?

Minimum wage only causes unemployment if the labor market is competitive. This is not currently the case in the US as a few big companies (Walmart, McDonald's) have disproportionate market power, and most economic sectors are becoming even more concentrated. Under such oligopsony conditions, increases in minimum wage will generally come out of profits (which are at historically high levels of the GDP [1]). Since wages are spent locally, but profits not as much, minimum wage regulations should generally help the local economy.

[1] https://fred.stlouisfed.org/graph/?g=1Pik

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