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

619 points by chollida1 10y ago

djsumdog 10y ago
Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?
- pboutros 10y ago
  Cities and states have access to debt restructuring methods (per this article), which PR does not. http://www.cnbc.com/2015/12/01/crunch-time-for-puerto-rico-debt-crisis.html http://www.cnbc.com/2015/12/01/crunch-time-for-puerto-rico-d...
  - desdiv 10y ago
    States do not have access to chapter 9 bankruptcy. If Puerto Rico were a state then it would not have the bankruptcy protections that it currently enjoys right now. Things would be much much worst for them in that case.
  - adrianratnapala 10y ago
    I think the point is that the states, being states, are in the same situation as the federal government is. They can tell creditors to go *k themselves. And then both sides get to bear the consequences. In truth, something similar is true for local governments as well, in practice.
- ch4s3 10y ago
  They would have been able to filibuster and stop congress from removing the pharma subsidy that then resulted in pharma companies fleeing the island. This in turn lead to the underfunding of pensions and general budget shortfalls on the island. So... maybe they'd have made out better as a state. Who know though, they had all their eggs in 2 baskets basically.
- dragonwriter 10y ago
  > Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation? 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.
- chimeracoder 10y ago
  > Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation? 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).
  - giancarlostoro 10y ago
    Jones Act and a couple of other things: https://www.bna.com/demise-puerto-rico-n57982074653/ 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-pharmaceutical-exports/#.WQsV89ryuUl http://www.puertoricoreport.com/puerto-rico-leads-pharmaceut...
    - chimeracoder 10y ago
      > 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. 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.
      - 10y ago
- appetizer 10y ago
  If a real challenge was made to Puerto Rico's territory status since the US conservatorship was based on racist premises, wouldn't it be more likely to get kicked out of the union than assigned statehood? At least by Supreme Court analysis of the constitutionality of the conservatorship. I suppose if that happened there would be immediately enough consensus to gain statehood from both Puerto Ricans and US Congress.
- jcranmer 10y ago
  Yes, being a state would solve some of these fiscal issues. It's even been discussed for the past few years that this debt situation might be the thing that pushes Puerto Rico to actually become a state. The major problem is that Puerto Ricans don't actually want to become a state. In the various referendums, the majority generally goes for status quo, followed by statehood, followed by independence. In 2012, the 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.
  - leesalminen 10y ago
    I was in San Juan last month and spoke with ~12 people on the topic. It was roughly an even split between statehood and status quo. Many anticipated a declaration of insolvency and figured statehood was the best fix for the problem.
  - mgbmtl 10y ago
    Just curious: what's the main argument against statehood? Federal taxes?
    - mooseburger 10y ago
      Puerto Rican here. Basic dignity I think. We should be an independent country, but most Puerto Ricans are frightened of independence.
- Animats 10y ago
  There's a statehood faction, an independence faction, and a big "don't upset the gravy train" faction that likes the status quo. If Puerto Rico became a state, US Federal personal income taxes would be imposed. If Puerto Rico became an independent country, immigration to the US would be stopped. There have been referendums on this. The next one is June 11, 2017.
  - kchoudhu 10y ago
    I know a very wealthy hedge fund manager who just moved to PR in order to minimize (read: eliminate) his Federal tax burden. Of course, as the current situation demonstrates, not being under the Federal taxation umbrella has certain disadvantages.
    - zeroer 10y ago
      Wait. I though Puerto Ricans were only exempt from federal income tax on Pueto Rican-sourced income.
      - dustinmr 10y ago
        Here's a local law where if you meet all the criteria (income made off the island, spend > 180 days per year here, various other criteria), you're exempt from income taxes here. And since you're a resident, all your income is here. Effectively exempting you from federal income taxes. The idea was to attract high net worth individuals to spend money here. Every analysis I've seen says it has worked quite well.
        martinald 10y ago
        Crazy. So if you move to PR but making money from other US based interests you get exempted from US federal income tax, but if you move and work permentantly in say Germany, you still get charged US Federal Income tax?
        enraged_camel 10y ago
EternalData 10y ago
I feel like local governments are going to be the first to really be affected by significant pension overlays that are not properly accounted for -- a lot of pension funds assume rates of return that are historically farcical. I think the industry average used to be about 8%. "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 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.
- toomuchtodo 10y ago
  I think the concern is overblown. States will need to backstop local governments, and the federal government will backstop the states. 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.
  - bpodgursky 10y ago
    > and the federal government will backstop the states I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle. I'd rather see failures and 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.
    - toomuchtodo 10y ago
      > I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. Agreed. That shift is going to happen though. Seniors are not a cohort you can ignore. They vote like clockwork. > I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + 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.
knob 10y ago
I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not 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 https://www.youtube.com/watch?v=Tt-mpuR_QHQ What will happen? I have no idea. Good to see this in HN.
- deleted 10y ago
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- vkou 10y ago
  > We owe money to the creditors... and what you do with a debt is to you pay it off. 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.
  - knob 10y ago
    I will admit that you are right on that. It's a tough spot to be in. 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
mirekrusin 10y ago
Should I cash my USD now or should it be safe for few more months?
- rrggrr 10y ago
  Money isn't a mechanism for the exchange of sovereign assets anymore. That role has been supplanted by debt. You wouldn't cash in your USD anymore than you would trade in your car because petrol prices have fallen. You might cash in your US Treasury bonds. I say might because there is no flight to safety from US bonds at nation-state scale. Treasuries are the only game in town. If all this is confusing then here's 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.
  - SEJeff 10y ago
    So perhaps the successor to the successor to bitcoin, in another 10 or so years?
creaghpatr 10y ago
A few months ago I discussed this with friends and suggested the government subsidize cheap flights to Puerto Rico, say $30 for a round trip flight from Atlanta, scaled up depending on domestic distance. This would cost taxpayer money but would drive a ton of tourism to Puerto Rico (albeit temporarily) and pump a bunch of money into their economy, defibrillator style. I've never been there but given a cheap round 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.
- emodendroket 10y ago
  Probably recreating the tax climate that attracted pharmaceutical manufacturers and was allowed to lapse would be more effective than trying to gin up tourism (although in my opinion probably that wouldn't be all that helpful either).
  - mgbmtl 10y ago
    Lowering taxes only works if you can combine it with something else that will keep the companies in place afterwards, such as a critical mass of specialized workers, infrastructure, etc. Otherwise it's just playing the downward-spiral game in a saturated market. The federal government should create a 10-year plan to subsidize PR and fix its economy/democracy from the ground up. If you look at Eastern Europe, it takes a long time. One specific hack won't fix this, that's magical thinking, and usually from corrupted politicians turfing their funders.
    - dmix 10y ago
      > 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.
6stringmerc 10y ago
All that text about Puerto Rico's financial difficulties and not one mention of the rampant fraud that spun up the debt from a reasonable amount to the $XB that is likely to default is the result of graft, corruption, and fraud enabled by many US and international actors. Want to take a guess how many of those responsible for the transactions, debt issues, and back-office fund transfers are in jail and all their 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.
- hkmurakami 10y ago
  Would love to read more on the subject if you have links to both the PR and Dallas situations handy.
  - jchmbrln 10y ago
    Not the OP, but I read this one recently about Puerto Rico: https://www.thenation.com/article/after-a-century-of-american-citizenship-puerto-ricans-have-little-to-show-for-it/ https://www.thenation.com/article/after-a-century-of-america...
  - kmc059000 10y ago
    Here is an article on the Dallas pension problem. http://www.economist.com/news/finance-and-economics/21711335-pensions-crisis-has-been-brewing-decades-and-it-not-confined-dallas http://www.economist.com/news/finance-and-economics/21711335... 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.
masterleep 10y ago
Illinois badly needs to do this as well.
- vanadium 10y ago
  First, you'd need the Illinois legislature to stop arguing and navel-gazing about the long-standing budget impasse and actually do something about it, for better or for worse. This seems unlikely.
- notfromhere 10y ago
  Illinois has a stronger economy than PR. Illinois's problem is that pensions are underfunded and the state constitution mandates a flat tax. The utter dependence of local gov't on property taxes also doesn't help
- bilbo0s 10y ago
  When you're looking for states that might be in trouble, you're looking for places with certain attributes. For instance, high debt per capita and low per capita income. Add to that low or decreasing populations and a few other metrics and you can get a really good picture of which states will end in the most trouble. 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.
rrggrr 10y ago
> As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not have. Every time every one of us votes for any politician who favors any deficit spending - and this is most of us - we give aid and comfort to this outcome. We all want fiscal responsibility until its a cause that touches us emotionally.
- vkou 10y ago
  The United States will always be in some amount debt, and that's perfectly fine. Going into debt, in order to invest into something with a good RoI is a non-brainer. 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.
- learc83 10y ago
  There's a difference between a state, municipality, or territory engaging in deficit spending, and a sovereign government that controls their currency doing the same.
deleted 10y ago
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digitalneal 10y ago
Wonder how bad it would be if they didn't subsidize rum production so heavily.
- everybodyknows 10y ago
  How much is rum production subsidized? Hiding tax breaks for export industries is hypocritical politics, but logical economics.
bradleysmith 10y ago
I spent several months in Puerto Rico working on operations with Google's Project Loon, launching balloons out of Cieba. 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.
justforFranz 10y ago
Does anyone know how much the US federal govt is on the hook for?
Taylor_OD 10y ago
I was in Puerto Rico a year or so ago. I'm by no means a expert but it seemed like a odd place to live. Mostly because its not a US state yet a good chunk of the people seem to want it to be.
guelo 10y ago
The PROMESA bill is disgusting. An unappointed board filled with bankster-friendly technocrats will now overrule democracy in Puerto Rico. The island is in for a generation of recessions and low growth as the entire economy will be permanently directed towards paying off bondholders.
golemotron 10y ago
Debt: The Next 5000 Years
WillyOnWheels 10y ago
The Marxist hidden in me says * listen to Richard Wolff's views on Puerto Rico http://www.rdwolff.com/tags/puerto_rico http://www.rdwolff.com/tags/puerto_rico * listen to David Graeber https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290 https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290
kirse 10y ago
Are there any investment opportunities amidst this news? I've always wondered how these massive bankruptcies play out.
grandalf 10y ago
When issues of local government financial problems come up, I think it's important to remember that local governments are typically not able to undertake deficit spending the way the Federal government is. 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.
- dragonwriter 10y ago
  > 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. 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.
  - grandalf 10y ago
    I completely agree that our leaders would exploit loopholes. My point was meant mainly to describe the scenario if the Federal government were effectively constrained. 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.
gwbas1c 10y ago
A lot of people forget that government debt is often funny-money. Defaulting on debt is very different than not paying your friend back.
- ww520 10y ago
  Only for governments that can issue money.
sidmitra 10y ago
There is an excellent episode on the podcast Radio-Ambulante on exactly this. There're are accounts of a few people living there, small business owners etc. if i recall correctly http://radioambulante.org/en/audio-en/debt http://radioambulante.org/en/audio-en/debt English translation: http://radioambulante.org/en/audio-en/translation/translation-debt http://radioambulante.org/en/audio-en/translation/translatio...
kyleblarson 10y ago
In 30 years bankruptcies like this one will look like peanuts compared to the collapse of massively underfunded government employee pension funds that will begin happening soon.
azinman2 10y ago
On the bright side, perhaps it's now a great time to buy property in PR?
kqr2 10y ago
For a good intro to the Puerto Rico financial crisis, see this Planet Money podcast : http://www.npr.org/sections/money/2016/04/01/472733338/episode-693-unpayable http://www.npr.org/sections/money/2016/04/01/472733338/episo...
rburhum 10y ago
For the Spanish speakers of HNs, NPR's Radio Ambulante has an excellent episode (called "deuda") that they did last year explaining the complexity of the situation. 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/5571309b-92cf-49c6-9897-5088c9d08229/anon.npr-mp3/npr/ambul/2016/12/20161216_ambul_deuda.mp3?orgId=1&d=2261&p=510315&story=505690705&t=podcast&e=505690705&siteplayer=true&dl=1 https://16683.mc.tritondigital.com/NPR_510315/media-session/...
- koolba 10y ago
  What percentage of the debt is held by private individuals and what percentage is bets by traders?
  - cinquemb 10y ago
    I was wondering this too, who is exposed, by how much, and are those entities publicly traded now? 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-bankruptcy-for-muni-investors-1414183339 http://www.barrons.com/articles/seven-lessons-from-detroits-...
_delirium 10y ago
> OC is generally well managed Lol, it looks like the bankrupts are allowed to write HN comments from bankruptcy court.
- maehwasu 10y ago
  What information in his comment do you disagree with?
  - deleted 10y ago
    [deleted]
- sctb 10y ago
  We detached this subthread from https://news.ycombinator.com/item?id=14261562 https://news.ycombinator.com/item?id=14261562 and marked it off-topic.
hindsightbias 10y ago
Why not sell of the island, or part of it for seasteading?
oneguynick 10y ago
As you hear about Puerto Rico the next few days, take some time to get smart on the history and dynamic. Highly recommend Congressional Dish Podcast that came out a few weeks ago. Very good - http://www.congressionaldish.com/cd147-controlling-puerto-rico/#more-2190 http://www.congressionaldish.com/cd147-controlling-puerto-ri...
cpr 10y ago
As Maggie Thatcher said: eventually you run out of other people's money.
nom 10y ago
http://www.nationaldebtclocks.org http://www.nationaldebtclocks.org I'll just leave this here.
ComodoHacker 10y ago
TIL there are territories of the United States where the U.S. Constitution is not fully applicable.
elihu 10y ago
I'm not super knowledgeable, but this seems to me like a good thing. If investors lend money to a government that can't repay, they should lose some of that money. I don't think whole economies should remain in a state of economic slavery. 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?
ksec 10y ago
Ok, So China's economy is on the verge of collapse ( as the media likes to paint it), it is not sustainable, but they are carefully trying to control it. 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?
faragon 10y ago
Apple could buy that debt and rename the island to "Apple Island", etc.
danschumann 10y ago
Their governor looks like Michael Scott. I've never understood why governments go into debt. It's just stupid.
- setrofim_ 10y ago
  It's misalignment of incentives rather than stupidity (well, in some cases, maybe also stupidity). Governments make decisions from one election cycle to the next. So taking on debt that will be some future administration's problem in order to finance public projects now, and increase the current administration's popularity makes perfect sense.

619 points by chollida1 10y ago

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

pboutros 10y ago
Cities and states have access to debt restructuring methods (per this article), which PR does not. http://www.cnbc.com/2015/12/01/crunch-time-for-puerto-rico-debt-crisis.html http://www.cnbc.com/2015/12/01/crunch-time-for-puerto-rico-d...
- desdiv 10y ago
  States do not have access to chapter 9 bankruptcy. If Puerto Rico were a state then it would not have the bankruptcy protections that it currently enjoys right now. Things would be much much worst for them in that case.
- adrianratnapala 10y ago
  I think the point is that the states, being states, are in the same situation as the federal government is. They can tell creditors to go *k themselves. And then both sides get to bear the consequences. In truth, something similar is true for local governments as well, in practice.
ch4s3 10y ago
They would have been able to filibuster and stop congress from removing the pharma subsidy that then resulted in pharma companies fleeing the island. This in turn lead to the underfunding of pensions and general budget shortfalls on the island. So... maybe they'd have made out better as a state. Who know though, they had all their eggs in 2 baskets basically.
dragonwriter 10y ago
> Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation? 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.
chimeracoder 10y ago
> Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation? 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).
- giancarlostoro 10y ago
  Jones Act and a couple of other things: https://www.bna.com/demise-puerto-rico-n57982074653/ 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-pharmaceutical-exports/#.WQsV89ryuUl http://www.puertoricoreport.com/puerto-rico-leads-pharmaceut...
  - chimeracoder 10y ago
    > 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. 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.
    - 10y ago
appetizer 10y ago
If a real challenge was made to Puerto Rico's territory status since the US conservatorship was based on racist premises, wouldn't it be more likely to get kicked out of the union than assigned statehood? At least by Supreme Court analysis of the constitutionality of the conservatorship. I suppose if that happened there would be immediately enough consensus to gain statehood from both Puerto Ricans and US Congress.
jcranmer 10y ago
Yes, being a state would solve some of these fiscal issues. It's even been discussed for the past few years that this debt situation might be the thing that pushes Puerto Rico to actually become a state. The major problem is that Puerto Ricans don't actually want to become a state. In the various referendums, the majority generally goes for status quo, followed by statehood, followed by independence. In 2012, the 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.
- leesalminen 10y ago
  I was in San Juan last month and spoke with ~12 people on the topic. It was roughly an even split between statehood and status quo. Many anticipated a declaration of insolvency and figured statehood was the best fix for the problem.
- mgbmtl 10y ago
  Just curious: what's the main argument against statehood? Federal taxes?
  - mooseburger 10y ago
    Puerto Rican here. Basic dignity I think. We should be an independent country, but most Puerto Ricans are frightened of independence.
Animats 10y ago
There's a statehood faction, an independence faction, and a big "don't upset the gravy train" faction that likes the status quo. If Puerto Rico became a state, US Federal personal income taxes would be imposed. If Puerto Rico became an independent country, immigration to the US would be stopped. There have been referendums on this. The next one is June 11, 2017.
- kchoudhu 10y ago
  I know a very wealthy hedge fund manager who just moved to PR in order to minimize (read: eliminate) his Federal tax burden. Of course, as the current situation demonstrates, not being under the Federal taxation umbrella has certain disadvantages.
  - zeroer 10y ago
    Wait. I though Puerto Ricans were only exempt from federal income tax on Pueto Rican-sourced income.
    - dustinmr 10y ago
      Here's a local law where if you meet all the criteria (income made off the island, spend > 180 days per year here, various other criteria), you're exempt from income taxes here. And since you're a resident, all your income is here. Effectively exempting you from federal income taxes. The idea was to attract high net worth individuals to spend money here. Every analysis I've seen says it has worked quite well.
      - martinald 10y ago
        Crazy. So if you move to PR but making money from other US based interests you get exempted from US federal income tax, but if you move and work permentantly in say Germany, you still get charged US Federal Income tax?
        enraged_camel 10y ago

EternalData 10y ago

I feel like local governments are going to be the first to really be affected by significant pension overlays that are not properly accounted for -- a lot of pension funds assume rates of return that are historically farcical. I think the industry average used to be about 8%. "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 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.

toomuchtodo 10y ago
I think the concern is overblown. States will need to backstop local governments, and the federal government will backstop the states. 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.
- bpodgursky 10y ago
  > and the federal government will backstop the states I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle. I'd rather see failures and 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.
  - toomuchtodo 10y ago
    > I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. Agreed. That shift is going to happen though. Seniors are not a cohort you can ignore. They vote like clockwork. > I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + 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.

knob 10y ago

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not 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 https://www.youtube.com/watch?v=Tt-mpuR_QHQ What will happen? I have no idea. Good to see this in HN.

deleted 10y ago
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vkou 10y ago
> We owe money to the creditors... and what you do with a debt is to you pay it off. 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.
- knob 10y ago
  I will admit that you are right on that. It's a tough spot to be in. 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

mirekrusin 10y ago

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

rrggrr 10y ago
Money isn't a mechanism for the exchange of sovereign assets anymore. That role has been supplanted by debt. You wouldn't cash in your USD anymore than you would trade in your car because petrol prices have fallen. You might cash in your US Treasury bonds. I say might because there is no flight to safety from US bonds at nation-state scale. Treasuries are the only game in town. If all this is confusing then here's 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.
- SEJeff 10y ago
  So perhaps the successor to the successor to bitcoin, in another 10 or so years?

creaghpatr 10y ago

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

emodendroket 10y ago
Probably recreating the tax climate that attracted pharmaceutical manufacturers and was allowed to lapse would be more effective than trying to gin up tourism (although in my opinion probably that wouldn't be all that helpful either).
- mgbmtl 10y ago
  Lowering taxes only works if you can combine it with something else that will keep the companies in place afterwards, such as a critical mass of specialized workers, infrastructure, etc. Otherwise it's just playing the downward-spiral game in a saturated market. The federal government should create a 10-year plan to subsidize PR and fix its economy/democracy from the ground up. If you look at Eastern Europe, it takes a long time. One specific hack won't fix this, that's magical thinking, and usually from corrupted politicians turfing their funders.
  - dmix 10y ago
    > 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.

6stringmerc 10y ago

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

hkmurakami 10y ago
Would love to read more on the subject if you have links to both the PR and Dallas situations handy.
- jchmbrln 10y ago
  Not the OP, but I read this one recently about Puerto Rico: https://www.thenation.com/article/after-a-century-of-american-citizenship-puerto-ricans-have-little-to-show-for-it/ https://www.thenation.com/article/after-a-century-of-america...
- kmc059000 10y ago
  Here is an article on the Dallas pension problem. http://www.economist.com/news/finance-and-economics/21711335-pensions-crisis-has-been-brewing-decades-and-it-not-confined-dallas http://www.economist.com/news/finance-and-economics/21711335... 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.

masterleep 10y ago

Illinois badly needs to do this as well.

vanadium 10y ago
First, you'd need the Illinois legislature to stop arguing and navel-gazing about the long-standing budget impasse and actually do something about it, for better or for worse. This seems unlikely.
notfromhere 10y ago
Illinois has a stronger economy than PR. Illinois's problem is that pensions are underfunded and the state constitution mandates a flat tax. The utter dependence of local gov't on property taxes also doesn't help
bilbo0s 10y ago
When you're looking for states that might be in trouble, you're looking for places with certain attributes. For instance, high debt per capita and low per capita income. Add to that low or decreasing populations and a few other metrics and you can get a really good picture of which states will end in the most trouble. 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.

rrggrr 10y ago

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

vkou 10y ago
The United States will always be in some amount debt, and that's perfectly fine. Going into debt, in order to invest into something with a good RoI is a non-brainer. 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.
learc83 10y ago
There's a difference between a state, municipality, or territory engaging in deficit spending, and a sovereign government that controls their currency doing the same.

deleted 10y ago

[deleted]

digitalneal 10y ago

Wonder how bad it would be if they didn't subsidize rum production so heavily.

everybodyknows 10y ago
How much is rum production subsidized? Hiding tax breaks for export industries is hypocritical politics, but logical economics.

bradleysmith 10y ago

I spent several months in Puerto Rico working on operations with Google's Project Loon, launching balloons out of Cieba. 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.

justforFranz 10y ago

Does anyone know how much the US federal govt is on the hook for?

Taylor_OD 10y ago

I was in Puerto Rico a year or so ago. I'm by no means a expert but it seemed like a odd place to live. Mostly because its not a US state yet a good chunk of the people seem to want it to be.

guelo 10y ago

The PROMESA bill is disgusting. An unappointed board filled with bankster-friendly technocrats will now overrule democracy in Puerto Rico. The island is in for a generation of recessions and low growth as the entire economy will be permanently directed towards paying off bondholders.

golemotron 10y ago

Debt: The Next 5000 Years

WillyOnWheels 10y ago

The Marxist hidden in me says * listen to Richard Wolff's views on Puerto Rico http://www.rdwolff.com/tags/puerto_rico http://www.rdwolff.com/tags/puerto_rico * listen to David Graeber https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290 https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290

kirse 10y ago

Are there any investment opportunities amidst this news? I've always wondered how these massive bankruptcies play out.

grandalf 10y ago

When issues of local government financial problems come up, I think it's important to remember that local governments are typically not able to undertake deficit spending the way the Federal government is. 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.

dragonwriter 10y ago
> 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. 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.
- grandalf 10y ago
  I completely agree that our leaders would exploit loopholes. My point was meant mainly to describe the scenario if the Federal government were effectively constrained. 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.

gwbas1c 10y ago

A lot of people forget that government debt is often funny-money. Defaulting on debt is very different than not paying your friend back.

ww520 10y ago
Only for governments that can issue money.

sidmitra 10y ago

There is an excellent episode on the podcast Radio-Ambulante on exactly this. There're are accounts of a few people living there, small business owners etc. if i recall correctly http://radioambulante.org/en/audio-en/debt http://radioambulante.org/en/audio-en/debt English translation: http://radioambulante.org/en/audio-en/translation/translation-debt http://radioambulante.org/en/audio-en/translation/translatio...

kyleblarson 10y ago

In 30 years bankruptcies like this one will look like peanuts compared to the collapse of massively underfunded government employee pension funds that will begin happening soon.

azinman2 10y ago

On the bright side, perhaps it's now a great time to buy property in PR?

kqr2 10y ago

For a good intro to the Puerto Rico financial crisis, see this Planet Money podcast : http://www.npr.org/sections/money/2016/04/01/472733338/episode-693-unpayable http://www.npr.org/sections/money/2016/04/01/472733338/episo...

rburhum 10y ago

For the Spanish speakers of HNs, NPR's Radio Ambulante has an excellent episode (called "deuda") that they did last year explaining the complexity of the situation. 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/5571309b-92cf-49c6-9897-5088c9d08229/anon.npr-mp3/npr/ambul/2016/12/20161216_ambul_deuda.mp3?orgId=1&d=2261&p=510315&story=505690705&t=podcast&e=505690705&siteplayer=true&dl=1 https://16683.mc.tritondigital.com/NPR_510315/media-session/...

koolba 10y ago
What percentage of the debt is held by private individuals and what percentage is bets by traders?
- cinquemb 10y ago
  I was wondering this too, who is exposed, by how much, and are those entities publicly traded now? 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-bankruptcy-for-muni-investors-1414183339 http://www.barrons.com/articles/seven-lessons-from-detroits-...

_delirium 10y ago

> OC is generally well managed Lol, it looks like the bankrupts are allowed to write HN comments from bankruptcy court.

maehwasu 10y ago
What information in his comment do you disagree with?
- deleted 10y ago
  [deleted]
sctb 10y ago
We detached this subthread from https://news.ycombinator.com/item?id=14261562 https://news.ycombinator.com/item?id=14261562 and marked it off-topic.

hindsightbias 10y ago

Why not sell of the island, or part of it for seasteading?

oneguynick 10y ago

As you hear about Puerto Rico the next few days, take some time to get smart on the history and dynamic. Highly recommend Congressional Dish Podcast that came out a few weeks ago. Very good - http://www.congressionaldish.com/cd147-controlling-puerto-rico/#more-2190 http://www.congressionaldish.com/cd147-controlling-puerto-ri...

cpr 10y ago

As Maggie Thatcher said: eventually you run out of other people's money.

nom 10y ago

http://www.nationaldebtclocks.org http://www.nationaldebtclocks.org I'll just leave this here.

ComodoHacker 10y ago

TIL there are territories of the United States where the U.S. Constitution is not fully applicable.

elihu 10y ago

I'm not super knowledgeable, but this seems to me like a good thing. If investors lend money to a government that can't repay, they should lose some of that money. I don't think whole economies should remain in a state of economic slavery. 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?

ksec 10y ago

Ok, So China's economy is on the verge of collapse ( as the media likes to paint it), it is not sustainable, but they are carefully trying to control it. 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?

faragon 10y ago

Apple could buy that debt and rename the island to "Apple Island", etc.

danschumann 10y ago

Their governor looks like Michael Scott. I've never understood why governments go into debt. It's just stupid.

setrofim_ 10y ago
It's misalignment of incentives rather than stupidity (well, in some cases, maybe also stupidity). Governments make decisions from one election cycle to the next. So taking on debt that will be some future administration's problem in order to finance public projects now, and increase the current administration's popularity makes perfect sense.