Puerto Rico files for biggest ever U.S. local government bankruptcy
reuters.com
reuters.com
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. Be one political party or the other, it is the same thing.
There was a big manifestation this past Monday, where various Unions, groups, and students did a "Paro Nacional". Truthfully, I don't think they accomplished anything, other than various idiots vandalizing property they don't own. We are in deep shit, and it's going to get worse.
Lots of people are leaving the island, which just compounds the problem (less revenue).
I don't leave because: it's where I was born, where I have lived my entire life, and it is, honestly, paradise.
Obligatory John Oliver's Puerto Rico segment: https://www.youtube.com/watch?v=Tt-mpuR_QHQ
What will happen? I have no idea. Good to see this in HN.
That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money.
Lenders charge creditors a premium, because of the risk of default. It's as much on them to be careful about who they lend money to, as it is on the creditor to be careful about being able to pay off their debts.
I bought, and yet to fully read, "Debt - The first 5000 years". One of the things the book states at the start is what you are saying: Not every debt has to be paid off. One of the risks creditors take is the possibility of having a debt not paid back.
I also remember how Haiti was, to this day, punished via monetary means. Haiti wanted freedom? Fine... they will (and did) cripple the entire country.
Another example from the book: Madagascar. The French invaded, and took out their Queen. Then imposed taxes on the population as to get back the money they invested in the invasion/war. wtf
We currently charge imprisoned people for room and board for their jail stays.
That's a leveraged buyout. Borrow money to take control of another entity. Use revenue from the target entity to pay that debt. Profit.
If the Puerto Rico government defaults now, no banks should lend money to it again ever. Perfect.
This outcome doesn't affect other lender-borrower relationships.
Yep, for example this is why no American bank will give loans to Donald Trump anymore. Too many bankruptcies. So he isn't worth the risk.
And yeah, it does effect other lender-borrower relationships. It's all people, and people get nervous.
Brazil is once again facing mounting debt due continuous budget deficit. This time the govt is pushing for austerity reforms that, if not approved, will lead once again to default. The govt approved ratings are abismal and populist candidates are expected to win next year's general election.
So, defaulting sucks.
Not defaulting worked extremely poorly for Greece.
It all depends on the particular circumstances of a country. If you're going to be building massive amounts of infrastructure, then yeah, you may want to consider not defaulting. On the other hand, if the foundations of your economy are sound, you may do well to default, and live with the credit rating hit.
You get a Greece like deflationary spiral that basically totally destroys your economy, and any hope you ever had of paying off the debt.
Bring on the defaults.
That's the lenders' fault. Bleed the suckers dry. Lenders like that shouldn't get to manage money.
If after the default, they are in a reasonable state, then yeah, people will lend them money, because there is a good chance they will make a big enough profit.
You WANT to be a lender which balances the risk with the rewards. You don't want one which just blanketly says no to something which has a low risk, which will make a lot of money because you are arse hurt about it.
They're shut off from [cheap] public markets though. So while your statement is technically correct, they are usually stuck with lenders of last resort, such as IMF or direct country-to-country loans, which generally come with pretty harsh terms.
If you have any spare cash on hand (investor inflows, interest payments and bonds redemptions on other bonds) your choices are:
1) Hold cash, the more the better, in order to prop up the value of the fund.
2) Lend it to another borrower.
I'd say that if you expect a smooth sailing or are in a situation where investors cannot liquidate, strategy (2) is reasonable. But even then you might want to extract some better terms from the borrower by quoting PR as a scare factor.
Most funds, however, will expect either investor outflows or markdowns in other municipal bonds with similar characteristics. For better or for worse, the municipal market is frozen for a new borrower, at least for the next few days.
Do you want to live in a society where you and your family can be sold into slavery if you fail to pay off your debts? Because that's the logical consequence of not allowing debts to be discharged from bankruptcy, regardless of your ability to pay.
Being a money-lender shouldn't be a license to print risk-free money.
That is at least in theory. Since a considerable part of the economy is in the gray zone, there are ways of dodging that. Large part of the law system is corrupt, so well connected people always find a way to be untouchable. The system is also inefficient so lots of those debts exist just on paper. Basically, you can't go bankrupt as a person, and you wont be sold to slavery, but you will effectively still own the debt and the only way to not repay it is to work in the black zone outside of the system, or wait so long that the lenders write it off themselves (after a few decades or so?).
The USA financial system that allow for bankruptcy is part of the reason that we are an entrepreneurial nation.
Failure is part of innovation.
At least in some "debtor's jail" systems you could get your rights back after spending some time incarcerated.
In many there is, though it's more restricted in some countries than others, which leads to https://en.wikipedia.org/wiki/Bankruptcy_tourism
Rich banks losing money vs poor people being exploited for the rest of their lives.
I think I know which one I prefer.
VCs invest in opportunity, not promises.
But regardless, you should try to make your investors whole, if at all possible. I view that as your ethical responsibility as someone who receives investment.
If I promise to pay you back a loan, it's understood that the interest rate you'll charge me is related to the risk of my defaulting and that the option exists.
This isn't usually some freak unforeseeable accident. The 2007 crisis was caused as much by people overlevering themselves to take advantage of a situation as it was by predatory lending practices and greed/fraud at the I Bank level. But people love to put all the blame on the banks, and none on themselves for not being prudent.
Then why does the borrower have moral culpability in addition to financial culpability, while the lender only takes a financial haircut.
If I take my car to a mechanic am I expected to know as much about my car as the mechanic? Do I tear down and redo/inspect any work they do to my car? If I go to a mechanic and ask them if it's okay to do something dangerous to my car and they go ahead and do it, I'd say the mechanic is way more on the hook morally than the idiot driver.
Similarly if I go and ask for a 1,000,000 USD mortgage when I'm only making $20,000 USD a year and have no savings or investments and the bank gives it me... You're saying both me and bank are on equal moral footing? You would then have to ask what incentive the bank had to give me the money. Either they are greedy and wanted to charge a super high rate or they intended to pass the buck and sell the loan which can be fraud if they lie about my credit worthiness to the next buyer of the loan.
Yes, I blame the supposed experts, not the folks they suckered.
Morality is a human defined concept. We also only seem to apply it to individuals, a company declares bankruptcy, fires a large number of employees and then rights itself society shrugs but if a person does it we cast shame on them.
Life is short, if I dig myself into a whole with the best of intentions, I am not going to spend years living a lesser life and condemning my kids to that same lesser life if there is a reset button.
I don't think that it's right for a company to do what you describe wantonly. I absolutely think we should shame companies when they mistreat people.
And what you're describing with your children is selfish, but it's an understandable selfishness - your children are of course going to be a higher priority to you than society at large, as it is with almost all parents.
Anyway, my idea about the obligations of fulfilling one's debts seems to be an unpopular one, and I'm sure I won't change anyone's mind, especially if they've chosen to take on a lot of debt themselves, so I'll stop here.
On the other hand, governments are perceived to be reliable borrowers, so they can receive low interest rate loans and are expected to repay their debt. There is not really a way for governments to issue equity like companies, so if governments become lackadaisical about paying their debts, then we should expect their loans to become much more expensive as well, and this could aggravate the financial distress of many high indebted public entities that are already struggling to pay the bills.
For anybody who has taken a look at the balance sheets of public entities, it is shocking how poorly capitalized many of these local governments actually are, and how aggressive some of their financial assumptions are (with low interest rates and 50% of their capital held in debt, a 8% assumed rate of return is extremely aggressive, and they would need financial rock-stars to achieve this at their scale). If investors are spooked, then interest rates could spike for many other government loans, and cause contagion among local government entities that would eventually require the federal government to intervene.
Governments don't make payments at adjustable-interest rates. If sovereign borrowing rates rise, because the financial markets decide that sovereigns have a higher rate of default then they thought before, this doesn't affect outstanding debt - only the ability to get more.
It is also important to separate local governments from the sovereign federal government. The federal government is allowed to print money to cover its debts, which dramatically reduces the concern among creditors that it may default. Local governments have no such option, however; they can only address their deficit by reducing spending or raising taxes. Both options are politically unpopular (hence why most politicians do nothing and pass the buck to their successors), and may be counterproductive because the local citizens can just pack up and move if taxes are increased, or if public services deteriorate.
Edit: I forgot to mention that the most attractive way to raise government revenue is to actually attract more productive citizens to move there and increase the tax base (aka how California managed to dig itself out of its immediate financial hole). However, this is obviously very difficult to achieve in practice.
Yes, that is true. Governments typically don't pay off the principal on their loan - more specifically, as soon as the loan matures, they take out another loan.
This is not a problem if you've got some 30-year bonds maturing (As a dollar borrowed 30 years ago is trivial to pay off today), but this is a big problem if most of your debt is in the form of rolling, 1-year, or 3-year bonds.
This is still quite different from a mortgage you need to renegotiate every 5 years, or where the interest rate is pegged to prime + X%.
If you've defaulted in the past, your cost of capital will go up in the future.
You can weigh the future effects of renegotiating your debt now, and make a decision.
Iirc GM debt holders took a large haircut in their bond holdings. GM is still a going concern and I'm sure they've issued debt in the last few years after their restructuring.
Well, one of the questions is whether the modern definition of "efficient amount of lending" is in fact the correct value. If we're undervaluing the risk of a fat tail of defaults, and worse, correlated defaults, then the true "efficient amount of lending" may in fact be less than it is today, even much less.
Ten years ago, I could have said that if you looked around, it seemed like a there were an awful lot of entities carrying debt loads that they couldn't possible discharge and default seemed inevitable. Of course, I would have been poopooed and had the claim dismissed because, basically, "debt is good for the economy". Now we live in a world where at least some of those debts have indeed caused catastrophe; Greece is still reeling, the stresses that financial crisis put on the EU are still echoing, Puerto Rico is now declaring bankruptcy, and the "financial crisis" that we have still really not "recovered" from was 100% driven by debt and the slicing and dicing thereto. In light of that, take another fresh look around at the sheer staggering number of entities in massive and probably unsustainable amounts of debt right now, and in light of the fact that it is clearly not impossible for them to default after all... what happens next?
Furthermore, this sort of implicitly presumes that "lending" is the only possible method for attaining the goals, but there are other possibilities, such as selling equity stakes. Selling equity stakes are not equivalent to lending, which indeed is part of the point, and fully exploring the second-order consequences would be on the order of a PhD thesis or beyond, but at least equity-based systems don't have the catastrophic collapse that debt-based systems do due to the lack of leverage. In an equity system, an entity can lose its shirt, but if it does, that's that and it's all done. In a debt-based system, an entity can lose more than its shirt.
And, you know, human society has discovered more than once that debt-based systems are attractive nuisances where the long-term dangers strongly outweigh the short-term gains. I hesitate to directly apply the lessons of the past because a lot of things have changed about the financial world in the last hundred years... but that doesn't guarantee that the modern world won't in fact dig itself in even deeper than any of the ancient civilizations did, with much greater skill, and consuming all the slack in the system before the collapse far more effectively than the ancient world could ever have dreamed of.
Which has the effect of limiting the sorts of loans people are willing to write.
I think some limit is a good idea. The idea that a city can borrow from the people living there in 20 years is sort of dangerous. Maybe not for durable infrastructure that will still have much value, but for present day services? That's a horrible deal.
If A and B both invest in, say, a house, and B disappears leaving debts behind, at least A can sell the house and B isn't getting any ongoing utility from it.
My genetic future isn't any kind of investment. I'm never seeing any return on that.
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.
They already, for years had to pay higher taxes and fees on almost everything to fight the deficit.
Years ago the first economists called for a restructuring of the debt because it's highly unlikely Puerto Rico will ever be able to repay it.
For years, those with a good education left Puerto Rico because there is no hope of turning the country around while staying on the current course.
From some abstract moral-focused point of view you are absolutely right of course, but here I agree with Berthold Brecht: Food first, moral second. ("Erst das Fressen, dann die Moral!").
It's just business.
As long as we're talking about pushing lines.
Its a contract. Success or failure in being able to meet the conditions are all mapped in.
Also, morality is always attached to anything which involves society and its institutions. For example, good faith in contracts (bona fides) which has evolved all the way from the roman republic is an example of codified morality which proved to be quite useful in societal transactions (i.e. it solidifies expectations of behavior and hastens transactions). Explicit moral value perhaps may not be visible ("basic economic tool") but it is certainly built into foundations of every and any contract.
https://www.one.org/international/issues/debt-cancellation/
http://www.huffingtonpost.com/marcelo-giugale/does-debt-forg...
Countries pay back loans because they like to keep a good reputation for future loans, but this does not work in a situation where there is nothing to lose since you can't service loans anyway.
(Of course banks can enlist other states to do strong-arming: See eg Greece who were pressured to accept a deal worse than default to benefit foreign EU banks)
how are they being pressured?
> What would you use it for? Buy olives?
No, of course not. What government sells olives ? You'd use it to pay Greek taxes. Those you'll pay anytime you want to buy anything from Greece.
So it doesn't matter if export companies get paid in Euros, Dollars, or anything else. They'd still owe taxes in (presumably) Drachma and that would create a market for Drachmas.
- Love to. How about Global Thermonuclear War?
- WOULDN'T YOU PREFER A GOOD GAME OF CHESS?
- Later. Let's play global thermonuclear war.
A citizen today is no more accountable for actions taken that long ago than for actions taken 4000 years ago.
We cannot force debtors to repay money in perpetuity. That's half way to indentured servitude, or worse. If someone has no hope of every paying off their debts, the logical thing to do is not bother trying. That is waste. And we long ago abandoned the idea of debtors prison. Puerto Rico cannot be jailed nor can it be forced to make payments forever as that would destroy their economy forever. The only reasonable thing is to eliminate the debts through the legal process.
Could it about setting an example?
Showing the lost case a hard time might scare others into good behavior.
These are two-sided contracts negotiated between adults. It is not the role of government to always side with one type of party over all others. The risk of loss is a cornerstone of investment. So too is the concept that one may borrow without risking a lifetime of punishment should the venture fail.
I don't know about "taken lightly" but bankruptcy and defaulting on a debt should not be something to be "ashamed" of, for an individual, a company, or a government. Default is an option specifically written into every debt contract out there. There should be no more shame in choosing to default as there would be for choosing to exercise a stock option that causes your counterparty lose all his money. Lenders reap a huge premium for doing nothing but assuming the risk of default. If there was zero risk there should be zero premium.
No surprise that it's mainly bankers pushing the "it's immoral to default" line.
Are those committing fraud too ?
What, incidentally, about politicians who force pension funds to buy bonds "they like" by legal means ? (at least 200 politicians in current service are guilty of this)
These are US government bonds, by the way, if a default happens with them, the sort of organisation that will suffer the most is US pension funds.
[1] https://en.wikipedia.org/wiki/United_States_federal_governme...
It totally depends. There is nothing shameful about declaring bankruptcy because you got into an accident and your insurance company refused to pay your six-figure hospital bill. But if you take out a big loan to build a new hotel and blow it all on hookers and booze? Fuck yeah you should be ashamed (and also go to prison).
What if I take out a loan, am perfectly capable of paying it off, but the asset backing the loan has lost sufficient value so as not to be worth the continued investment? Is there any shame in defaulting and letting the lender suffer some of the consequences?
In my personal opinion, no. Especially with secured or collateral-backed loans, the lender knew there was risk going in and there's no reason they shouldn't also suffer some losses in the case the plan doesn't work out.
This is the situation many Americans found themselves in after the last housing bubble and it still makes me sad that some people still feel a sense of obligation to corporations that would screw them in a heartbeat if it would make them a legal dollar.
Your point that the risk premium you pay while taking a loan implies that the lender is willing to take some pain from your failure is sufficient in itself.
BTW: We've got to watch out for these financial guys, they'll try it again if they have the chance.
And the housing market really went off the rails because people were making stupid bets. Does the casino enable stupid bets? Damn right. But we don't blame them when a gambler loses all their money on a stupid bet.
I'm as pissed as anyone that bankers didn't go to prison en masse, but what they did was package mortgage debt up as more safe than it was. It was home buyers eating up easy money with no restraint that caused the pricing to hit bubble territory.
I think the only reason for that is follow the money. Casinos pay taxes. I'm trying to follow a machine learning mooc and I'm just realizing how much humans (specifically me) suck at classification and at pattern matching.
Planet money I think asked the question: if sugar is addictive, why isn't it regulated?
My questions are Why is alcohol regulated? Why is tobacco regulated? Why is cocaine banned? Why can't we have kinder surprise in the us?
Why is gambling a state monopoly? Why does a casino need a license?
We all don't agree on everything but there's plenty of blame to go around if you think of gambling as an addiction (and addiction as a disease to be treated rather than an excuse to kill people). I think of gambling is a disease, casinos are a "guilty until proven innocent". Sort of like Google's famous " don't be evil" motto which recognizes that an organization in this position is likely to steer towards being evil by default and only by constant vigilance can we prevent ourselves from being evil. In the case of many casinos, I think it is just a matter of cover my ass when they have programs against gambling addiction.
tl;dr I love the idea of personal responsibility but we can't throw people in prison for victimless crimes.
And I agree that sugar should be regulated and taxed, or that we should at least do more to educate them on how destructive it can be to health.
Sure, people make bad decisions. But how can they be expected to make better ones when the people that are supposed to be relied on for good advice give such bad advice.
Who has ever said that banks are supposed to be relied on for good advice? Hire an accountant for that, the banker works for the bank, not you.
Except that the price of houses rise when everyone else can take out loans beyond their ability to pay. You can't opt out of this game.
Not to mention that most of the people defaulting on their mortgages had the ability to pay - until they lost their jobs. Which they lost because of other people defaulting on their mortgages. The economy was a tinderbox.
The interest rates you're being charged aren't tailored specifically to you. But they look at everyone else with similar income and credit and look a the default rate and figure out what they need to charge to make a profit.
It's the sum of the whole lending business, not individual loans, that matter. They'll do as much as they can to mitigate the loss on loans that do default. It's just throwing money away not to. But they've got it all figured out to loan money, have some of it default, and still make plenty of profit. The idea that the minority of people who do default and declare bankruptcy causes them any pain is really quaint and naive.
But boy is that an image their PR would love to get everyone to buy into. If you can convince people to feel bad. If you can convince society as a whole to shame and pressure people into doing something that's the most advantageous for lenders, that is just a lending vision of utopia.
(Disclaimer: I've never been in serious debt or declared bankruptcy. There's no morality that should be implied or assumed by that.)
But don't these number take into account the fact that the average person is scared/ashamed of defaulting? If personally declaring bankruptcy were much more common, would interest rates be where they are right now?
What do you mean "more like fraud"? Immoral behavior and fraudulent behavior are not mutually exclusive. It is possible for something to be both immoral and fraudulent, such as the example I gave in my post.
>>What if I take out a loan, am perfectly capable of paying it off, but the asset backing the loan has lost sufficient value so as not to be worth the continued investment? Is there any shame in defaulting and letting the lender suffer some of the consequences?
No, I don't think there is any shame in that. Like you said, the risk for that is known upfront and is therefore built into the interest rate.
My wife and I at one point were in the hole nearly 1m. The crash put my house way under and the job money fun time went away. It sucked. You know what we did. We canceled the cable TV, we stopped eating out. We watched every penny. I work jobs I hated, hated, hated. We got credit councling and got on a plan with them and stuck to it. We paid our debt.
I am by no means saying that banckrucy should not be an option in some cases. Our medical systems is a mess and that is a huge cause of banckrucy. However let's be clear people signed those loans without understanding it and it is their fault. I knew the cost of the interest only loan I had. I got burned but it was a bet I entered after doing research and math, etc. When it did not work out I sucked it up and delt with it.
I agree that some companies did some shady stuff, but really? You get something to good to be true and you don't question it? The consumer has to take some responsibility for their actions.
I am glad you and your family were able to work your way out of the debt you found yourself and I commend you for it. Many others are not able too. Provided they did not get themselves into debt just to keep up with the Joneses' while living on credit cards, they should not be ashamed or made to feel stupid for taking advantage of a legal option that has been priced into their loan via their interest rate.
You talk of doing the math and taking a bet on your loan. The lenders do the same math and take the same bet. They just don't apply any moral imperative to their actions.
Life happens, and at the end of the day their is no shame in looking at the math and your situation and determining that the numbers don't add up and its time to reset.
The companies that lent them money for the second time should have gotten a clue, shouldn't they? Isn't this precisely what credit reports are for? It is definitely stupid to live over one's means and then go bankrupt, but it is just as stupid to lend money to people that have proven themselves irresponsible in the past, and so whoever lends to them should also suffer the consequences.
If a bad borrower keeps getting loans then it's the fault of the lender. We have nothing to gain by putting such moral weight on bankruptcy.
Regardless of what anyone says to the contrary, we all want the world this way. When we need credit or a loan, we want it to be easy to get because "we'll be responsible about it" and we don't want to be burdened with everyone elses irresponsible debt baggage.
If this was really a problem for lenders they would adopt different practices to avoid this sort of outcome. So instead they are happy to persist it and use whatever tactics they can to maximize their benefit. Lenders lend. They know the risks. They've been doing it for a long time. And they're smarter than you. I'm sure they appreciate your help in fighting their version of the good fight.
Most people aren't consciously running up debt with plans to declare bankruptcy. It happens, but they're not any sort of population to fall back on for an argument about a worldwide system of debt and lending. Using them is really an argument for your own ego and how you're a better person. Maybe you are. But it really has nothing to do with the other 7 billion primates on the planet.
There is this statement that about 60% of bankruptcy are from medical debt. Here is a quick over view of that number:
http://www.snopes.com/643000-bankruptcies-in-the-u-s-every-y...
So lets say it is true (it likely is) then what are the other 40% from?
The problem I have with your statements is that you make the companies out to be evil. They should know better and not lend anymore is what you are saying. However how does that work? Should that 60% that filled for the pure reason that someone got really sick not be able to get credit later? Should we have 2 classes of the ability to get credit after bankruptcy? "Okay, well it was medical so no issues. Hey looks like you spent to much but you learned you lesson this time so I guess I will give you a loan. Hey you seem to have not learned your lesson so no loan for you." This is a slippery slope. How does a company value all of this? The answer is they cannot really. There is math behind the lending and it is faceless and has to be because anything else is subjective and could be discriminatory.
This is no different then:
"Hey you should put limiters in to only let the car go the speed limit."
"Hey you had enough soda this week. No more for you."
The company that lends the money can only profile on the finances and payment history. Anything else is really out of bounds. It is not the lenders job to KNOW that you cannot control your spending and they are not EVIL because they do not do so. They are not your parents.
You are blaming the company for something that is the persons responsibility. No one is saying that there are not bad situations were bankruptcy is required. All I was saying that doing it should not be easy. There is a reason a judge is required to rule on this.
This was well-said. Without the risk of default the loan would be worthless for the lender.
[0] http://www.goodreads.com/book/show/26593431-the-new-confessi...
I'm sure you would enjoy 18th century england and US. Debtors prison was once totally a thing. I like to think of it's dismissal as an evidence piece that a civilization evolves.
When considering seriously hard punishments, think for a while what if the person is actually in the situation from no fault of their own. Because, court often has a hard time doing any moral judgements and just looks at the cold facts.
Defaulting on a debt is not about shame. Governments don't feel shame. The ramifications are that future credit becomes much more expensive, as the next contract's debt provisions will be harsher.
> No surprise that it's mainly bankers pushing the "it's immoral to default" line.
Plenty of honest, hard-working individuals pride themselves on always paying their debts. Similarly there are those who think that you shouldn't extend yourself beyond your means. It's not just bankers who consider not paying dues to be immoral.
Except student loans :(.
Suppose someone living the HN dream makes a bunch of money from his startup, and decides to pay off his mortgage. It might be structured as a loan from his company to himself, which then has zero risk.
A bank processing an FHA loan has zero default risk, since the government steps in to pay them. And they often sell the loans to a government-run company anyways.
A bank giving a conventional mortgage will often require 20% down, and again they resell the loans to a government-run corporation after a few years anyways. If you default in those first few years, they effectively get a 20% discount on the original purchase price of the house when they take it. Not zero-risk, but the 2008 financial crisis appears to have only had a 30% drop in house prices. (Obviously, subprime lenders can't resell their loans to the government, and didn't require a heavy down payment)
Generally speaking, the idea that interest mostly pays for risk assumes that there is no 'low-hanging fruit' where guaranteed returns are possible if only there was money. Paying down high-interest debt is one form of guaranteed return, so theoretically there shouldn't be such a thing as high-interest debt if the market was mostly efficient.
I guess the conclusion of your view is that: If people were more diligent about handling their money, banks wouldn't make as much risk-free money.
That's very likely the case. Although the real world does not like zeros and tries hard to push some complex high order effects that will be triggered before any zero is realized.
Also the reason for default does have some bearing on morality -- a person that declares bankruptcy because of years of buying a new TV every year and going on expensive vacations is much different than a default due to factors outside of one's control (such as being laid off or suffering a medical catastrophe.)
Puerto Rico has, for years, knowingly overspent without much of a fiscal plan to pay debts. This issue isn't due to forces outside their control, but specifically because of decisions they consciously made. It is political malpractice and the people of Puerto Rico will now pay the price for generations. If that isn't immoral, then immoral has lost all meaning.
So the children of the children of the children of people of Puerto Rico should accept their situation because of "decisions they consciously made"? They're not even born yet. How does that work?
The C- students that became bankers can't be expected to actually work for a living!
(Sarcasm)
Also how to resolve this situation ? You do want a pension, right ?
Interesting to note on the corporate angle, bankruptcy laws are a fairly-recent invention. (Where by "fairly recent" I mean "several centuries".) The US's laws, in particular, are credited with fostering some of the innovation in this country, as they reduce the impacts of failure.
But it seems like it would honestly be the opposite (i.e., government bankruptcy being bad). The more people that are involved, the higher chance there is of a tragedy of the commons
Yet, in any thread where Greece, Puerto Rico, etc come up there's this strong backlash against defaulting as being somehow immoral (as though it's not written into the lending agreements). What exactly is the difference between burning a bunch of VC money then shutting down and defaulting on a loan? In both cases we have an institution putting money at risk in the hopes of making a profit, and then losing it. I don't see the big moral difference here.
I don't subscribe to the notion that "bankruptcy is immoral", it's just a business transaction within the established framework with checks and balances in place.
That said though - situation with startups and business development loans in general is a little different because startups are by definition attempting to turn the idea they present to investors into reality with investors' money. So unless they fail because of a blatant mismanagement of funds (which does happen of course) - in a typical startup failure situation where something is built but there's no more runway and no more money coming in and no buyers to take over the operation - this just feels like it's easier to justify the less negative vibe around that situation.
Multi-billion dollar governments go bankrupt because of mis-management. Less "Uber For Dogs" and more "Enron", minus the intentional criminality. Governments go bankrupt because its citizen "shareholders" vote for continued debt accrual and negative EBITA. But citizens don't care. It's OPM: Other People's Money. Since they're also "customers", their goal is to get as much possible out.
The other point is (arguably) that government should not be risking bankruptcy for the sake of innovation. Which in the cases of government bankruptcy, was not the reason for insolvency anyway. So then it comes back to mismanagement, where maybe the better analog is personal bankruptcy. If an individual came to you and said they were declaring bankruptcy because they had spent more than they made for the last 20 years, you probably wouldn't have much sympathy.
Just saying, bubbles / relative lack of supply times are a really bad time to be a moral and ethical purchaser. You're either not gonna win and a crook will win, or you'll have to become that crook who willfully screws the bank.
Meanwhile centrally controlled low interest rates mean money is sloshing looking for any return, any. Everything higher return got financialized. So loan money is going to be aggressively thrown at those willing to take out large loans and pretend they'll pay back. A flood in the money supply due to low interest rates gets the same result in the long run as a pinch in worthwhile asset supply.
If? That's already how the USA is compared to most European societies. Our current President has been through a string of bankruptcies.
Remember that interest on loans that's higher than inflation is effectively profit for the lender; the lender needs to weigh the profit of the loan over the risk of default.
The goal is that every loan is paid off; that's what keeps interest rates low.
Either there's money to be made, or there isn't. There are penalties for defaulting too, like greater difficulty securing future loans, or higher premiums. It's not like defaulting is free of consequences.
Bankruptcy is a legally accepted aspect of economic transaction and you need to establish that there are moral means before you start talking about moral hazards.
Conflating personal morality with economics... is very bad. It leads to things like debtor's prisons (which, unfortunately, exists more or less in America) and heavily prejudices against poorer people. It's an easy to understand system... you borrow money, you pay it back with interest. Its the lender's responsibility to ascertain your credit worthiness. If you default, it becomes harder for you to get credit and you pay higher interest. There is no need to also attach negative behavioral characteristics. Lets face it, we all know someone who is bad with money, but that doesnt make them a bad person, it just means they need an accountant.
How many times has the President declared bankruptcy? I have many issues with Trump but this is not one of them. in fact, I commend him for being able to reinvent himself by learning how to create an effective brand and sell his name.
You wouldn't bat an eye if a company made a controversial decision, like laying off a number of workers for the benefit of shareholders. Yet too often, we judge people if they cannot pay back.
They should just default. Youll have a higher interest rate for future loans, but youll have something to invest for growth and not stifled by austerity. Ask Greece how austerity is going for their economy.
Which is quite an achievement on a personal level, but is a completely useless thing in every other aspect of society.
The name though literally means nothing. There is no consistency, quality, customer service, or otherwise, to any of the properties that bear the Trump moniker.
"Inefficient" is whatever the heck the market decides it is, subject to supply, demand, and risks. If we make it a social norm to take bankruptcy lightly, oh well, the efficient thing to do for markets is to factor that in.
It has to be considered on moral grounds rather than economic ones.
Is there any reason to favor that hypothesis over the competing one that if debt is made onerous, an inefficiently and damagingly high amount of lending goes on? Seems to me the evidence favors the latter hypothesis. It's worth bearing in mind that debt as a social instrument has so easily and often turned toxic that some societies have gone so far as to outlaw it altogether. If you agree with me that this would be an overreaction, would you agree that we therefore need to take steps to tame it and mitigate the damage before that sort of overreaction repeats?
Yes, at one extreme, nobody ever pays anything back and no lending ever happens.
But at the other extreme, everybody always pays their debts and the bankers asymptotically approach ownership of 100% of the money.
I think we are closer to the second extreme than we should be.
With governments, it's a lot about the credibility. You could say that it was wise economically for e.g. Argentina to default on its loans in 2001 given the circumstances; however, the default and the associated political rhetoric have cost a great deal to the Argentinian government and people, and it continues its decline, although it was a very wealthy country 80 years ago and effectively avoided the Second World War. The economic and political institutions in the country are not trusted.
I live in Finland, which in 1918 suffered a famine after a bloody civil war. The new government took a loan from U.S. creditors in 1919 to buy food. Many other countries who took similar loans at the same time defaulted them at the Great Depression or the following years in 1930's. Economically, that would have made a lot of sense.
But the Finnish government kept paying it back, even during the beginning of World War II while being attacked by U.S.S.R. This gained a huge positive reputation which helped the country a lot. After the war, the old loan was eventually converted to a fund whose payments were given as university grants and stipends to students coming from Finland to U.S. universities.
It would have been quite easy to default in 1920's or latest in 1940, and most modern economists would have advised for it, but not doing that was a good move.
The loan was eventually finished back in 1984, but the process attracted donors who gave further funding so that the stipend/grant system still exists.
It's pretty much a "Tragedy of the Commons" scenario, IMHO.
No. This will result in bad actors defaulting with little penalty except shame and guilt (which they won't care about) and good actors suffering. We want an equilibrium where good behavior results in at least equal if not better economic outcomes to bad behavior.
This should be priced into the lending until the penalties of defaulting (loss of credit, future lending problems, loss of existing assets and so on) creates the right cost to balance out the cost of paying off the loan.
Appetite for risk is good in the aggregate. PR will get downgraded for sure though.
Governments are stupid to borrow money and waste it, but banks were supposed to be even more stupid to lend money to these reckless institutions called governments, and it's not wrong if these banks pay the price of their stupidity.
I don't think the ability is stupid. Is the instance? Can't tell.
This only works if lenders are private groups and if they have the ability to set the terms of the loan (or deny it altogether). Neither of these generally apply at the government level.
There is an English transcript there and a lot of stats. The pension funds, for example, are effectively the people of PR.
While a reasonable idea in abstract, it's of little value to Puerto Rico and its residents.
For the next few decades no one will lend money to them unless backed by some kind of collateral like government land or revenue proceeds from tolls, and their ability to raise money via other means is highly questionable, as servicing current debt has likely exhausted all of the obvious venues.
Every borrower in the municipal market will pay a higher price for this, as funds and other institutional investors will deal with write-offs and potential fund outflows.
Sounds like normal debt raising. No one will give you money unless you have a plausible story of how it gets paid off.
Why do you consider it a good thing to be able to borrow money you have no plan to pay off?
None of the recently bankrupt municipal entities in the US - Stockton, Detroit, San Bernardino - are fun to live in, and most are in a downward spiral of cutting government services, which leads to employers leaving, which leads to residents moving, which leads to cutting government services, etc.
In particular municipal/state/government borrowers tend to prefer the first approach - usually by issuing bonds. In theory they are secured by the government's ability to levy taxes in its territory in perpetuity, so its ability to pay the bonds should be secure so long as there's likely to be future economic activity in the territory.
Robbery and bankruptcy have completely different effects on society. That's why one is legal, and the other isn't.
Except your pension fund probably lent them money too - how would you like it if you lost your pension because they decide to default ? This is maybe less true in the US but in EU mandatory pension funds are basically proxy for buying government bonds/funding government spending with a hope they will pay out in the future.
I agree theoretically - but the reality is people don't like to see huge defaults - it breaks confidence/trust - and lower trust increases cost/slows down growth and this is not politically acceptable - therefore politicians do everything they can to eliminate corrections and create distortions to preserve confidence.
I can imagine a large write-off that will come with some fiscal reform.
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?
If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living? They move to the States because the States are better able to attract businesses that will pay them what they are capable of producing (even though the States still have at least the Federal minimum wage, and offlten higher minimums), because the States face more favorable federal policy because Congress and the President need their votes, whereas they don't need PR's because PR doesn't get any in the Federal government.
Mopping a floor produces economic value because there's a difference in how much a dirty store sells versus a clean one. If all you can do is mop floors for this thought experiment, this difference in how much the store sells directly effects the economic value of your labor. In Puerto Rico, this difference is less than in the mainland US, which is why the value of their labor (and the natural price of it) is lower.
In other words, since the US is more intensely capitalized, there are more opportunities to provide $7.25/hr worth of value.
Consider two countries, A and B. A has limited economic development, low technology, poor infrastructure, low education. B is far more advanced. A and B lie on opposite sides of the globe and have essentially never had trade or direct contact. (This is an accurate scenario before the Age of Exploration, where travel was far more limited than now, and there were already large differences in the relative level of development of various lands.)
Person Pa mops the floors in country A and gets paid $0.25/hr. Person Pb mops the floors in country B and gets paid $5.00/hr. (You may wonder how we can define both of their incomes in dollars if the two countries have no contact; you can define a virtual exchange rate based on respective purchasing power, for instance).
Your interpretation states that there is a transfer of wealth from person Pa to... person Pb? Everyone in country B? Everyone in country A? It's not clear, but any of those conclusions seems unreasonable. There is no causal connection between country A and country B, so there can be no wealth transfer between them. And how can the existence of country B, at the unknown and unreachable recesses of the earth, cause a wealth transfer within country A?
The more reasonable interpretation is the opposite: it is person Pb who is receiving a transfer of extra wealth. From whom? From the past and present inhabitants of country B, who have created the wealth, technology, infrastructure and knowledge that allows Pb to receive more for the same amount of work. This interpretation, unlike yours, is backed by clear causal connections.
I do agree, however, that people often fail to account for this transfer of wealth.
You are correct about the greater transfer of wealth going to Pb, in that if Pb visits country A, s/he will have vastly greater purchasing power and thus economic opportunity (is s/he wants to settle down there) than the reverse situation of Pa going to country B.
Consider the possibility, in these days of globalization and corporate reach, that both are employed by the same firm, such as Walmart of 7-11 (let's forget about franchising and other specific details and consider only the obvious labor cost variations).
So now we have two employees, working for the same entity in different contexts, doing the same amount of work, and enjoying the same amount of purchasing power in their local economies - but very different levels of purchasing power if they wish to visit each other, which asymmetry will inevitably be compounded over time.
My basic point is that it's a matter of luck whether you are born in country A or B, but ceteris paribus there will be a significant and increasing opportunity gap through no fault or merit of the individuals involved. This is in my view a Bad Thing.
I am sorry for not laying this out more clearly, and by using the phrase 'transfer of wealth' I may have obscured my point. I agree that Pb primarily benefits from the whole economy of country B, but invite you to consider the low and inevitably worsening bargaining position of Pa (and by extension, the whole of A) in any kind of international transaction.
Is A a worse country because of some moral deficiency? Absent a specific and obvious cause, that conclusion might be the result of a 'just world fallacy.' Regardless, this is of little comfort to Pa, who can hardly be held morally responsible for the past failings of the society in which s/he originates.
First, this is at least as strong an assumption as the just world hypothesis, and at least as poorly supported. As it happens, invoking the "just world fallacy" is usually a sign that one is about to commit a fallacy that is just as bad. In fact, I would say it is worse, from a series of theoretical and practical considerations.
In my previous comment I have already shown an example of how your hypothesis (I am going to be charitable and not refer to it as a fallacy) leads you to a paradox. But there are many more.
Consider people born at different times of history. Do people who were born in the past suffer an injustice from the people who live in the present? "Well, but I can't do anything about it." Not for the ones who were born two hundred years ago, but what about fifty? You are clearly a young guy. Maybe even more of your income should be taxed and given to the baby boomers, to compensate them for the injustice of having been born in an age without the internet. (This is starting to look like a just world hypothesis applied to the system of defined benefit pensions...)
It gets worse. Demographically, socialism is the ideology of bourgeoise youths who hate their parents. Psychologically, its root is the rejection of one's parents, and of the advantages received from them. Therefore, guilt for "unearned privilege". But while it is true that the child did not earn the privilege, it is not true that it was not earned. It was not earned by the child, but it was earned for him, by his parents. (It is not a coincidence that adults, and especially married people, are more likely to be conservative.)
So try putting yourself in the shoes of the people whose work produced that wealth, which their children now inherit. Do they not get a say in who gets it? (Remember that they are already suffering from the injustice of being born in the past, so by denying them a say we are adding injustice to injustice.)
And of course, it does not stop at material wealth. There are all sorts of advantages (or disadvantages) one inherits from one's parents, in terms of education, social network, genetics, and so on. The family is the fundamental unit for the generation and transmission of inequality. Which is why the early socialists, who were intellectually honest, made it their explicit program to abolish the family.
Of course, there are many social problems with destroying the family. But there are also economic problems! Being able to transmit wealth to one's progeny is an extremely strong incentive for economic activity and growth beyond pure self-sustenance. In fact, property and inheritance are universal to all developed human civilizations: all of those proto-communist tribes anthropologists found never got much further than the stone age. The most likely conclusion is that they cannot: property and inheritance (in other words, inequality) appear to be an essential social technology that is required for development. The best a communist can hope for is that they may become unnecessary at some later stage of technological super-abundance, when we can all go off and play cowboys in space.
But we ended up focusing on economic factors again. Your idea of equality has much broader implications, though. If you say that the luck of one's birth is injustice, you cannot limit that to wealth. Differences in intelligence are unjust. Differences in attractiveness are unjust. We could go on and develop all the implications, but I'm going to stop here.
The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.
"Modest" here seems like an unproven assumption. The gap between the Puerto Rican economy and US state economies is much larger than the gap between, say, Pennsylvania and New Jersey.
As far as I know there's no real disagreement on the direction of the labor demand curve. If you put the minimum wage at $40/hour (or $10/hour in China) it would have massive consequences.
So even granting the 'little or no' result, we haven't proved the "modest increase" charge for Puerto Rico.
There are alternative views on this. Marx's theory for example says that workers are not paid according to the value they create, or what their labour creates, rather they are paid at the rate which is required to sustain them. The commodity which the worker produces and sells is termed 'labour power', requiring among other things food, enough to support a family if he has one and some amount in accordance with the moral character of society, varying with supply and demand accordingly. This is the minimum that needs paying.
So Marx would say that wage has nothing to do with value created. It only has to do with the value of labour power, which is equal to the value needed for the worker to sustain himself.
A Marxist society (or, Communist) does not have wage labour at all.
Puerto Ricans definitely live in a mixed economy, not the system that Marx described as capitalism, but it arguably shares the salient features of capitalism that Marx was addressing in the excerpt under discussion.
In my opinion this is enough to say that a particular society is 'capitalist', though like all words there are variety of nuances and exceptions and additions that can be attached. Capitalism in my view neither necessitates nor excludes government controls on production, social democratic policies, taxes, the state (except for defense of private property) etc.
A good example of a capitalist (state capitalist) country is the Soviet Union.
You don't feed a baby steak. That doesn't mean steak is bad, it means it's not what a baby needs or can use until its older.
Since in the post you were responding to, I was challenging the premise you quoted, I think that I am quite aware that there are alternative views to it.
This is cartoonish. I can't believe people say stuff like this in the 21st century.
This is not a refutation. Just like the raw materials used for production, the means of production, land rent etc. what is purchased is a commodity. Labour-time is that commodity. It makes good business sense to not only buy commodities at their value (and no more) but even to try and buy commodities under their value.
Why do you think labour-power is any different? It must be paid in accordance with its value, and how much extra is minimally required to ensure the continuance of the production of this commodity.
>The owner of labour-power is mortal. If then his appearance in the market is to be continuous, and the continuous conversion of money into capital assumes this, the seller of labour-power must perpetuate himself, "in the way that every living individual perpetuates himself, by procreation." The labour-power withdrawn from the market by wear and tear and death, must be continually replaced by, at the very least, an equal amount of fresh labour-power. Hence the sum of the means of subsistence necessary for the production of labour-power must include the means necessary for the labourer's substitutes, i.e., his children, in order that this race of peculiar commodity-owners may perpetuate its appearance in the market.
>Included in the value of labour power is both a physical component (the minimum physical requirements for a healthy worker) and a moral-historical component (the satisfaction of needs beyond the physical minimum which have become an established part of the lifestyle of the average worker). The value of labour power is thus a historical norm, which is the outcome of a combination of factors: productivity; the supply and demand for labour; the assertion of human needs; the costs of acquiring skills; state laws stipulating minimum or maximum wages, the balance of power between social classes, etc.
If the capitalist paid for labour-power at more than its value consistently, in the long run the capitalist will tend to make no profit at all. Profit originates in surplus value being extracted, and although there is leeway (there is a rate of surplus value, for example 0.6, though it could be 0.3 and the capitalist would still make a profit) any sensible capitalist will aim for the largest extraction possible.
throw in that even as recently as 2011 President Obama had to sign into law a bill postponing minimum wage laws and increases in America Samoa because it was literally destroying their economy after being force to accept such in 2007 and 2009.
It isn't just competitive labor markets but mobility of those who can fill the jobs that exist. then throw a likelihood of employers to increase work loads to compensate, penalties for tardiness, and such, it does not always turn out to be a boon.
with regards to Puerto Rico, this is simply an example of politicians selling out their populace to retain power and actually being around to be there when the hammer falls. it has happened in a few American cities and there are some states with very excessive and dangerous pension obligations that will be forced to vacate them or seriously reduce them .
Puerto Rico should stand as a warning to anyone who sees politicians promising the moon.
[1] http://www.scholarsstrategynetwork.org/brief/evidence-higher...
[2] http://www.npr.org/sections/thetwo-way/2014/07/19/332879409/...
On April 1, 1992 New Jersey's minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent. We also compare employment growth at stores in New Jersey that were initially paying high wages (and were unaffected by the new law) to employment changes at lower-wage stores. Stores that were unaffected by the minimum wage had the same employment growth as stores in Pennsylvania, while stores that had to increase their wages increased their employment.
They assessed Full Time Employment (FTE), a statistic which counts full time work as 1 'unit' and part time work as 0.5 'units'. That's really alarming, because we want to assess hours worked, and they used a metric that can't differentiate 30 hours / week from 10 hours / week. It's even worse because cutting hours while hiring more workers is a known way to reduce benefit costs and increase flexibility.
Neumark and Wascher redo the analysis using hours worked, and find a nonsignificant downward trend instead.
I don't think this settles the minimum wage question, but I've never heard a defense of Card and Krueger's result against this charge.
Where did you hear that?
The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.
I would not say that with such certainty…
http://www.sciencedirect.com/science/article/pii/S0166046216...
PR has more debt that California, and zero industry except for Bacardi rum.
Name one thing made in PR?
The reasons for the civil war demonstrate why state / territory autonomy are subservient to the will of the majority.
https://en.wikipedia.org/wiki/Tyranny_of_the_majority
This is also why the Electoral College exists, as annoying as it can be, it makes sense.
Assuming you were born in the USA, why were you born there rather than in Puerto Rico? Was this a matter of skill and judgment on your part, or just luck? If so, what basis do you have for denying the rights you enjoy to others who live in a territory rather than a state?
U.S.A was also once owned by another country and it managed to figure something out.
I lived in PR for a few months in 2014, every week I would learn more and more about how much of a disaster that island is.
I wish them luck cause it's going to be hard to get things going again.
This is the 21st century - any self-respecting democracy should respect the right to self-determination.
Wasn't the USA founded on the principle of no taxation without representation? On a principle of enfranchisement? On a principle of self-determination?
The tax/benefits situation is complicated.
First, not all states pay income tax.
On the other side, you have people with federal jobs that are taxed federally.
Then you have other people with registered companies in the US which pay federal taxes in the US, the state it's registered in, then also pay taxes locally.
-- It's complicated.
Are you talking about states of Puerto Rico?
In the US, no states pay income tax, but residents of every state pay federal income tax.
Wiki had data up until ~2013 and things haven't exactly improved since then. https://en.wikipedia.org/wiki/Economy_of_Puerto_Rico
100% of our politics surround this very question. The 3 mayor political parties are one pro statehood, one pro staying with the current status, one pro independence. The first two have always dominated, and only these past elections we had a candidate without a party make a dent in elections.
I'm saying all this to say, that the statehood (or lack of) is a very complex subject for Puerto Rico, both for real logical reasons and also for equally valid emotional ones.
To keep it simple though, statehood is a possibility, in as far as there may be a time where a majority may desire it. However, Puerto Rico doesn't really have much say on, other than voting to say if PR as a whole are in favor of it or not. So far, past votes, the results are no. But even if it's ever a "yes", we don't control it that happens or not. The US does.
Technically the 2012 vote was 'yes' but all of the votes so far have been framed poorly. And that includes the upcoming one, which is likely going to make it a waste of time; Puerto Rico needs a simple and clear referedum on 'Statehood Yes or No'.
"Are you okay with the current status or do you want a change?"
Because we ALL want a change. First, we want to know what the actual current status is. Then we want to know our options.
Most people will be able to understand you. If not, you'll figure it out quick by their expression and you can adjust your words/speed.
While we have local music/tv, most of the media is from the US. We are taught both languages from kindergarten, but like everywhere, some schools are better than others.
First: what you do with a debt is to you pay it off
Why? not all debts are created equal. Some contracts are unconscionable, and there's a related question of why people should be obligated on contracts that were negotiated on their behalf but in bad faith. I'm not saying that describes all of Puerto Rico's debts, but bad faith contracts are common enough that that they shouldn't just be passively accepted.
Of course I know this has been litigated a lot already and I don't expect you to start over that whole process from the beginning, but I'm always a bit skeptical of blanket moral assertions like this.
Second: I presume that, like most places, there are a lot of poor but more-or-less honest people who know little of complex business and governance affairs but are heavily impacted by them, to their economic detriment; and I presume further that there are rather fewer people who are expert at conducting such affairs, and have enriched themselves through this knowledge without having provided equitable value in return to those they have been dealing with.
Has anyone explored the idea of prosecuting the latter group and confiscating ill-gotten gains? While doing so risks infringing upon cherished concepts of property rights and due process if not conducted correctly, bankruptcy is a singular event that results from some breakdown or conceptual weakness of The Rules, and in collective contexts it seems only natural that the pain of bankruptcy should be distributed in approximate proportion to the pleasure that preceded the bankruptcy.
After all, one of the practical benefits of wealth is the ability to spend a lot of resources on placing procedural barriers between your wealth and anyone else who might want to make a claim upon it, whereas poor people are generally limited to hoping their door is strong enough to keep out wolves. The degree of legal or physical security you can afford is not necessarily correlated with the validity of one's moral claim on the property in question.
I can't trust the government on the island. We got in the mess because of them. They've been slowly getting us more in debt. They've lied. It wasn't until the island was $70 billion dollars in debt that they came out talking. And now we have the son of the most governor that had the most people investigated by the FBI.
I can't blame him for the actions of his dad. But I can't trust the government.
I can't trust that they will bring in a firm to analyze the debt and be fully transparent. The government is the client of the firm. There will be NDA's in there. They will have a statement somewhere with something like, "with the data/access we've been provided, this is what we understand..."
I can't trust it.
If we can get our hands on the data. If we can analyze it. If we can get experts on it. Publish everything and be transparent about it. We can make a non profit. Ask for contributions (so people are able to claim that) and analyze everything.
- How much do we actually owe? - What should we pay first? - Based on the terms, what has the highest positive/negative impact on the island? - From what we owe, what is actually legally binding? (apparently there are some terms that may not be 100% legal)
This is what I want. For us as citizens to come together and do this. For us to be able to answer our own questions.
But people just keep saying things along the lines of,
> We aren't happy with what you are doing, fix it. > We need this fixed. > We don't want the university or anything to get funding cut off, but fix this. > O'neill bellaco (something else going on on the island in regards to the mayor of a town regarding sexual harassment complains)
The people living in Puerto Rico, the people of Puerto Rico living outside the island, we all need to come together and at least analyze the fucking mess we are in.
Tenemos que resolver nuestros problemas. Pero para poder resolverlos, debemos analizarlos, entenderlos y tener un plan de acción. (We need to fix the issues. In order to do so, we need to analyze it, understand it, and have a plan to execute).
We need the data. Even if they make some law where they pardon everyone involved/implicated in issues because of it, we need the data to understand the mess we are in.
There is also a large portion of the population receiving government jobs or support.
No, there is no "you" here. Politicians accrued those debts on something else's bill in exchange for legal bribe schemes.
Nobody owes those debts, legally or morally.
The people and the creditors both were trolled by professional hustlers exploiting the public liability and private benefit design features of socialism.
Democratic leaders, who are human and subject to economic incentives, almost inevitably play the game of trading the future earnings of another administration for the benefit of their own administration.
Government leaders have 130+ IQs[1], the populace has 100 if it's lucky. It's relatively trivial for them to craft a spin to consistently leverage these vulnerabilities.
https://www.quora.com/How-accurate-were-the-IQ-scores-of-the...
I left. I was born there too. It was my entire life. I agree, it is paradise.
But your line just makes me think of the #YoNoMeQuité or #YoNoMeQuito thing. Don't let it turn into it.
I had to leave my family. My mom just had to have surgery and I wasn't there. My grandparents are old and not doing great health wise. My sister is trying to finish graduate school. My friends. I had a job, was making good money (that's not the reason I left) and I now have a remote job and still I can't move back.
---
For others, there is a big controversy with people saying (and shaming) others with the hashtags, #YoNoMeQuité (I didn't leave/quit) or YoNoMeQuito (I'm not leaving/quitting).
The reasons why people leave are theirs. It's not easy deciding to do it and it's not for us to comment on it.
I just hope this comment doesn't open the door to others who find the thread.
As is typical, electors always voted for people making financially irresponsible promises, and not for people proposing to try and control the bills. Politicians are only to blame as much as voters.
Same thing happened in Italy after WW2, and we (the young) are suffering enormously for the debt contracted by previous generations.
If you look at the entirety of the economy, bankruptcy is inevitable to some level or money has to be made somewhere. There is simply too much cash flow at any given time to say what countries owe what to who because if every country was debt free then there would be absolutely no currency.
Even Trump has filed bankruptcy FOUR times, including defaulting entirely on a multi-billion dollar loan but he gained value through the process. I'm not saying anyone should accept defaulting on any payments but the effects of looking at an entire economy are not necessary the same. The first time PR asked for money, the value of the dollar in PR was then multipled on top of itself every time additional currency was acquired from the US. If PR was going to completely get out of debt, then it would need a large amount to be shot straight into the economy, just like this.
There is so much more to it and nobody knows what will happen, just like we don't know what the stock market will do at a sound of a bell.
Best of luck thou
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 assets seized to repay the debt, a la Civil Forfeiture for drug crimes in the US?
I feel bad for the Citizens of Puerto Rico, because here in Dallas the Fire and Police Pension fund is probably insolvent due to a combination of graft and incompetence as well, and those responsible in both these circumstances seem to just shrug it off and go on with life, their pockets lined more than 90% will ever see in 20 years of hard work.
Talking about the debt in Puerto Rico without firmly acknowledging the conditions that led to it is irresponsible in my opinion. Hard to separate the two. And, if we're going to talk about accountability for the latter, then we should nail those who committed the former first. Likelihood of that? Heh, yeah I'm not optimistic - doesn't mean I can espouse what I believe to be a justifiable alternate course.
The gist as I understand is that pensioners were promised a 8.5% return (which didnt happen) and (some?) retirees are able to withdraw their current value in their pension in full. There is talk of reducing benefits, which is causing a situation much like a run on banks to occur.
I've seen a few proposed solutions such as having the state of Texas help pay, to pillaging funds from DART (public transit), to tax increases.
It is a complete mess, and PR must be in such a bad position. In Dallas' case, it is obviously corruption that caused the problem, with no penalty, and the only recourse is to penalize those that did not cause the problem. Seems like PR is in a similar yet more dire situation.
By the time anybody started paying attention, the wound had festered into a real infection. An almost uncontrolled fiasco of promises to the Police/Fire Unions and no chance of hitting the returns, and essentially gambling away millions that will only lose more in 10 years if that garbage isn't unwound like a bunch of bad Bear Stearns Swaps.
It's so ugly. It's an embarrassment. And the people who end up holding the bag look terrible for telling a 53 year old retired cop he shouldn't be able to pull out $1.7M in benefits and put a run on the account. Ugh!
But can't we also penalize those that made the un-keepable promises and mismanaged the funds? This won't make the policemen financially whole, but it would offer at least some sense of justice, and, more importantly, send a message to others currently operating similar schemes.
And if their actions were illegal, I wonder how many people were involved and able to be prosecuted. I imagine there are many, from investors to politicians, and thus an expensive endeavor for the city and state.
I think the best thing is to prevent this from happening in the future by monitoring and exposing these shenanigans early rather than before it is too late. Cities and states with pensions should take note of Dallas' problem and act accordingly. Contracts should include clauses for penalties and recourse so as to allow civil lawsuits.
So the answer to your question is that it is never going to happen.
If the US Federal government were prevented from running a budget deficit, we'd likely see a lot more solvency issues and financial failures of many sub-organizations within government due to bad budgeting. It would also be a lot harder for our leaders to start wars or get away with sloppy cost estimates of their grandiose ideas.
My argument is not that government should be small, simply that its spending should reflect its income and the results of its spending should be easily correlated with their cost.
Since the Federal government takes the lion's share of income taxes, local governments are constrained in their ability to generate income. Yet for most people, local governments provide the vast majority of the useful government services they enjoy.
So while it may seem that the Federal government is comparatively stable and responsible, the reality is that it's simply far less accountable to anyone and is able to use that lack of accountability to launder its reputation. States (or local governments) do not have the same luxury.
No, there's just be a lot more pressure to monetize government finances. We have some safeguards against that (e.g., the Fed being separated from Congress and outside of it's direct control), but the biggest constraint on that is that the government, so long as Congress is free to set fiscal policy within it's own preferences, has very little reason to choose the path of monetization.
Would the public have supported a tax increase in 2004 when the cost of the Iraq war began to drastically exceed estimates? Likely not, we'd have brought everyone back home and saved Trillions and prevented a significant amount of loss of life.
Puerto Rico is a look into the future. Illinois and other states are <20 years away from the same fate.
But as more Medicaid costs shift to states and they have to face their underfunded or unfunded pension obligations, things will get nasty.
Iirc, New Jersey (recent governors have balanced the cash budget by suspending pension fund payments), Massachusetts and Illinois are in the worse shape.
Other states are a mess, but are more sound. New York pension obligations are guaranteed by the state constitution, and pension contributions have taken place but the high taxes and presence of Wall St have mostly funded the obligations. (They do have an issue with the low interest rate environment and expectation o 7% returns)
If the Government doesn't deficit spend (or run large enough deficits), the only way the private sector can grow (as a whole) is by taking on more debt - which was the case before the GFC. But as soon as the lending slowed and stopped as the private sector stopped being able to take on more debt, a huge source of demand disappeared and the economy tanked. This actually very neatly explains the GFC as well as Japan's crash in the 80s, and even the Great Depression. It's no coincidence that the worst financial crashes have come after some of the most successful runs of surpluses! This was actually the main sign seen by most of the analysts and economists who warned of the GFC in the years running up to it (there were 11 identified by Dirk Bezemer in 2009 who qualified a set of conditions under their research).
Sectoral Balances explains quite neatly also why austerity never work (unless you have a big trade surplus) - the more Government spending that is cut, the more that growth is reduced. So deficits aren't really discretionary for the Federal Government, but are more determined by the economy. If you cut the deficit while the economy is performing badly, growth suffers and revenue is reduced (of course, the flip-side is that too-large a deficit would be inflationary). The deficit should approach zero as the economy reaches full employment and full capacity/efficiency - but most economies aren't really anywhere near full employment.
"During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually."
http://davidgcrane.org/?page_id=702
It doesn't auger well for the future of stable financial markets. Weak localities will fail, and eventually the states that have to support them. Puerto Rico is the canary in the coal mine.
Benefits will get (mostly paid); taxes will go up (they have to, they're at unsustainable historic lows). This is not the end of the world.
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 bankruptcies at a local level, which will maybe convince other municipalities to reform before they collapse. I don't want everything centralized into one giant US federal government default. That's not a better plan.
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 + Medicare commitments it can't handle.
I don't, but we should've been setting aside these funds. We didn't, and we'll still need to pay out even at a reduced benefits level.
> I'd rather see failures and bankruptcies at a local level, which will maybe convince other municipalities to reform before they collapse. I don't want everything centralized into one giant US federal government default. That's not a better plan.
Reform will not happen. That's code for "cutting benefits". As long as the US government maintains the ability to tax, it will not default. Social Security keeps a third of seniors out of poverty. 45 percent of Puerto Rican's are already in poverty. Cutting benefits further? That's not tenable.
No one held government accountable over the last several decades, and now we're stuck with the fallout.
EDIT: Because of ye olde' HN throttling limits:
Most seniors don't pay taxes, due to marginal tax rates. Seniors will vote all day to keep their benefits intact. I don't blame them.
> Reform will not happen. That's code for "cutting benefits".
The benefits to be cut will happen in a few small areas given the size of the US, thus will not affect the majority of lawmakers. If the GOP controls the Congress, that doesn't seem like a large enough impact for them to change their overall ideology towards pension subsidies.
Stick it in an omnibus bill with stuff they do like?
A country / protectorate defaulting is not necessarily something that can't be recovered from, and in some cases is the only sensible (or indeed feasible) course of action.
I am sure I am being very naive here but this seems to me to be the essence of taxation without representation.
"Representation" is a bit of a vague concept in US governance.
http://nypost.com/2015/10/21/more-than-2-dozen-ex-fdny-colle...
We're actually getting pretty handy at cutting retiree pensions and benefits. The deals negotiated decades ago predicated on fantastic rates of growth aren't really plausible and they eventually have to be reworked. That means cuts. That's reality and reality has, at long last, arrived for Puerto Rico.
So expect cuts. Don't believe there is some pot of gold out there filled with untaxed entities that just need to be tapped to fix everything. Its fiction and it won't happen like that.
The big reckoning after Puerto Rico is going to be Illinois. Producers are straight up evacuating IL while the state government just keeps digging itself deeper into the hole. That situation is going to set all sorts of precedents for how this nonsense gets resolved.
What makes it appropriate to cut obligations to creditors we call pensioners, but inappropriate to cut obligations to creditors we call 'bondholders'?
(The answer is, obviously, that our politicians are quite happy to push our elderly under the bus, in order to protect wealthy investors.)
The part where I said bondholders should be held harmless is a fiction inside your head. When the gears finally strip the bondholders in these cases (Detroit, GM, etc.) take epic baths, and I don't shed any tears for them either. $7 billion in bondholders’ obligations in Detroit were erased, for example.
So I suppose there is little difference between supposed "creditors we call pensioners" and actual creditors; everyone gets wrecked.
More people are moving out of Illinois than any other state. In polls residents of Illinois are most likely to say they're planning on moving to a different state. The state hasn't passed a budget in over two years, a US record for any state. Average income difference between families moving in and out of Illinois is over $20,000. The property taxes are second highest in the nation relative to COL and everyone agrees that they need to be increased to maintain the current budget. The state cut funding for all college grants programs and the average freshman class size at state schools has shrunk an average of more than 20% in two years. Illinois is the biggest exporter of students, and many never return. Pension costs are already 25% of the state budget and this is projected to increase.
The state is so deeply corrupt that bankruptcy seems inevitable. If not for the whole state at least Chicago. Madigan literally runs the state from the shadows and gov. Rauner has no real power.
The budget problems are accelerating at a frightening pace as anyone that can afford to leave the state does. The most severe issue is brain drain of the most bright and educated young people. Illinois will experience the fallout from this for decades.
If I had any money invested in Illinois I would watch this case closely. If Puerto Rico is allowed to proceed with bankruptcy to shed pension obligations Illinois will follow
If we instead look at time periods during which the industry average was considered to be 8%...
https://dqydj.com/dow-jones-return-calculator/
1960-1990 = 9.5% average return.
1960-2000 = 11.5% average return.
It's largely pointless to talk about inflation-unadjusted average-rate-of-return for long time periods. A 12% YoY return when inflation is at 15% is terrible. A 5% YoY return when inflation is at 0% is amazing.
Real (CPI as inflation) averaged annualized return on the DJIA 2000-2010: -2.219%
This is with relatively mild inflation.
Of course, 1960-2000 looks better when you literally put in the apex of the software bubble when P/E ratios shot skywards...part of which corrected over the decade following.
Expecting a 8% nominal or real return is simply nuts in my opinion because you are staking yourself on a really small sample size with crazy inflation to boot. Nominal or real is a nuanced distinction to what is plainly just bad overfit thinking. The introduction of just one decade with low inflation and bad returns can wreck you -- case in point: Dallas Firefighters/Puerto Rico ($43bn + of unfunded pension obligations)/Detroit etc. etc. etc.
If your economic system can't efficiently feed people, more complex industries will be even harder. Not to mention building new industries.
The failures of their socialist experiment go far deeper than simply a non diversified industry. The drop in the petro industry showed immediately how fragile the massive spending schemes and nationalization was.
As Thomas Sowell said (paraphrasing), the problem with redistribution is that you can only take someone's money/property once, you can't take their ability to continually produce goods. So when that well dries up the cracks in the system become apparent.
The wikipedia article on the Venezuelan economy is a good read about the risks of centralized planned economies.
Socialism works great until you run out of other people's money. Whether it's because the price of oil dropped, your most productive tax payers moved out, or your currency hyperinflates until it's worthless: somehow it's never socialism's fault. Reality eventually does set in, though.
I personally feel the right answer is in the middle. Socialise whats required like health, education, emergency services, roads, pensions, etc And leave the luxuries of life as free market.
As an extra touch, I would make politicians and civil servants required to use public services rather than private alternatives. Because when they and their families have to use public schools and hospitals etc they will care a bunch more about how they run than if they are choosing private alternatives, which is common in Australia at least.
That said, there is a huge government ("public") sector and the taxation is high on most things. Especially income and consumption.
Basically, all of the socialist programs that's currently going on in the Nordic countries rely heavily on taxing free enterprises (private sector) and would work a lot less without them.
social, not socialist.
Quite a different beast.
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 trip flight I would easily go and spend money.
The alternative appears to be some kind of bailout and/or debt restructuring and I don't see that working out in the long term, which would presumably cost taxpayers even more money.
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.
Subsidization is the game that corrupt politicians love. Not so much lowering taxes (and therefore their power to choose the beneficiaries among their friends/special interests). Unless of course the tax reduction is via a myriad of specialized loopholes and deductions, then it could be directed at a chosen few.
Bumping tourism would help relieve just a few drops but it's a swimming pool, not just a glass of water.
Let's just send cash over instead of tourists. Less chance of unintended consequences.
> Q: I was in a place with risk of Zika recently. How long do I need to wait after returning to get pregnant? > A: Men who have traveled to a place with a CDC Zika travel notice should wait at least 6 months after travel (or 6 months after symptoms started if they get sick) before trying to conceive with their partner. Women should wait at least 8 weeks after travel (or 8 weeks after symptoms started if they get sick) before trying to get pregnant.
Granted, someone from the continental U.S. dying of Zika is about as likely as them being eaten by sharks (less than 1 death per 300 million people per year[1][2]).
[0] https://www.cdc.gov/zika/transmission/
[1] http://www.cnn.com/2016/07/08/health/utah-zika-death/
[2] https://en.wikipedia.org/wiki/List_of_fatal,_unprovoked_shar...
I could remote work from PR; have never been there, and it's likely not my style. But some of my co workers moved back home once it was allowed.
What are income taxes in PR?
http://www.hacienda.gobierno.pr/sites/default/files/tablas_r...
Simple one, http://www.hacienda.gobierno.pr/individuos/contribucion-sobr...
Last column translates to,
> In excess of $61,500; $8,430 + 33% in excess of the $61,500
The short version is that a lot of the debt is held by the people of PR themselves in form of bonds that were sold when the economy was good.
The reason it was artificially good is that for a long period it had great US tax benefits when compared with other US territories/states. During that time several corporstions (particularly pharma) had factories and jobs there. During that time there was a boom in bond sales - a lot of predatory practices that are reminiscent of the US housing bubble were done there, too. Once the tax loophole was closed, corporations left the island, jobs went to shit, the bonds could not be repaid, and all well, you get the picture. Except that in this case, "not paying debt", literally means not paying a huge chunk of all the life savings that people poured (arguably even patriotically) to their own bond system (see the parallels to the housing crisis?).
You could technically boost the enconomy there by reintroducing similar tax loopholes, but it would be a temporary fix, and there would be significant struggles in the Senate and Congress... Taxation without representation sucks big time...
Link to podcast:https://16683.mc.tritondigital.com/NPR_510315/media-session/...
In the Detroit one, bond holders were able to get back .75c on the dollar[0], and I suspect the haircut here will be worse for bond holders.
[0] http://www.barrons.com/articles/seven-lessons-from-detroits-...
You want to read about law 936 and also understand that the bonds were sold to retirement funds and individuals. 22% of the debt is by local agencies. If you listen to the podcast (or read the transcript) it will make more sense.
http://www.cnbc.com/2015/12/01/crunch-time-for-puerto-rico-d...
In truth, something similar is true for local governments as well, in practice.
In the narrow sense, traditional municipal bankruptcy would have been available to it in this situation (and creditors would have acted with that knowledge, which would likely have forestalled it getting to the current situation) were that the case.
More broadly, PR would have greater influence in federal policy were it a state with voting representation in Congress and electoral votes for the Presidency, which would also make it less likely that things would have gotten this bad.
Puerto Rico's economy has been crippled by the Jones Act, which affects all US states/territories that rely solely on sea transportation for trade with the US. Hawaii is the only state that fits that description, and they've also been suffering deeply due to the Jones Act, although not as badly as Puerto Rico (for reasons due to the specifics of Hawaii's economy, not its statehood).
https://www.bna.com/demise-puerto-rico-n57982074653/
Used to be that Puerto Rico was once upon a time #1 in manufacturing, Japan was #2. The USA and England followed. Something to think about. Puerto Rico exports out of the US more pharmaceuticals than California currently, or at least it did in 2015[0]. There's so much potential for Puerto Rico. We also have a lot of engineers in NASA (or did?) because they go to Puerto Rico to hire engineering students if I remember correctly from Mayaguez. So much potential and it's sad to see it go to waste, I think all Puerto Ricans are to blame as much the people as the politicians. We all always blame politicians but as a people we don't do enough.
[0]: http://www.puertoricoreport.com/puerto-rico-leads-pharmaceut...
I can't think of a single thing Puerto Ricans could reasonably and legally do that would have fixed this problem.
The inability to import/export things at reasonable rates has crippled the economy, and nothing short of federal policy changes (which Puerto Ricans cannot directly influence, short of moving to the mainland) would impact those fundamental economic realities.
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 referendum was more or less connived to produce a vote for statehood (it was structured as two questions, the first "status quo or not" and the second "state, free association, or complete independence"). There's apparently another referendum scheduled in a month, but I've not found any polling on what the likelihood of success for statehood is in that referendum.
There have been referendums on this. The next one is June 11, 2017.
Of course, as the current situation demonstrates, not being under the Federal taxation umbrella has certain disadvantages.
Based on a couple of minutes of reading from wikipedia ( https://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico ), it sounds like the federal income tax is only eliminated as to income from sources in Puerto Rico. If your income is mostly capital gains from your vast stockholdings, what's the "source"? How exactly is this working? Do you have to be invested exclusively in stocks listed in Puerto Rico? (Do those exist?) Do you have to be exclusively invested in Puerto Rico government bonds? Is his hedge fund incorporated in Puerto Rico, and that's enough?
The idea was to attract high net worth individuals to spend money here.
Every analysis I've seen says it has worked quite well.
It's supposed to give some local autonomy to the taxation process and fiscal management.
I'm not familiar with the Puerto Rico situation, but elsewhere, some (likely significant) portion of your foreign-earned income may be excluded from your US tax burden. For most people who earn money abroad this means that while you must file taxes, you likely don't pay anything to the US Gov't on foreign-earned income.
I find the whole taxation-by-citizenship thing ludicrous and coupled with the separate Foreign Bank Account Reporting for accounts having more than $10k taxes are a headache for Americans living abroad.
I did not realize there was a vote that close. I'm sure I read about it but forgot. I bet you could learn some very interesting things by studying the costs and reach of advertising via Facebook or whatever social networking platform predominates in PR, since vast sums of money could be gained or lost based on the outcome of the referendum.
I don't really have the time or expertise to research this, but I would be extremely interested to know who is spending money on trying to influence the outcome. It seems like it would have significant consequences for the USA in general as well as PR in particular, and election manipulation seems to be a hot growth industry lately.
Seeing the island during September 2016 power outage was eye-opening. It was admittedly a pretty bad event that spurred it, but portions of the island were without power for several days. Infrastructure development is definitely necessary, particularly considering the possibility of storm hits there.
It is a lovely island, I hope this manages to nudge along solutions from what seemed to be a stagnating problem.
http://radioambulante.org/en/audio-en/debt
English translation: http://radioambulante.org/en/audio-en/translation/translatio...
Is there some way in which this move might turn out bad for the people of Puerto Rico, aside from it probably being more difficult to raise debt in the future at a reasonable rate?
* listen to Richard Wolff's views on Puerto Rico http://www.rdwolff.com/tags/puerto_rico
* listen to David Graeber https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290
http://www.npr.org/sections/money/2016/04/01/472733338/episo...
EU is, Brexit, Greece ( tiny compared to P.Rico ).....
And now U.S.
It seems we have more problems then we had after the Money Printing machine turned to full power in 2008.
This may sound naive, do we actually have a recession in the past 20 - 30 years? We may have contraction, but actual recession? 2008, was like a come and go event in such a short time frame.
And an even more stupid question, is a constant GDP growth, sustainable? Or if we include the lowered value of currency we have been in negative already?
I'll just leave this here.
This seems unlikely.
Illinois wouldn't be terribly high on that list. Your best bets for gaming collapses would be places like Rhode Island, Mississippi and Louisiana. In the next tier would be places like Kansas and Alabama. These are the places that I'd wager will have the most trouble in the future.
But I'm not sure how you'd game any of this... because we're talking about States, so bankruptcy protections would work differently.
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.
It stops being fine when the debt exceeds its ability to pay - which, given that it is in control of its own currency, never has to happen.
What you should be concerned is investments into things with poor RoI. Corporate crony handouts, tax cuts to the rich, building bombs and dropping them out of airplanes, and then rebuilding whatever they blew up, digging ditches and filling them... All of these have incredibly poor RoI.
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 another way of looking at it... it doesn't matter how precarious the US financial situation becomes until such time as there is a scaleable, stable and transparent alternative means of storing, buying, selling, lending, investing value.