The US's Greece?

[Gob]

Puerto Rico's governor has said the US territory cannot pay its $72bn (£45bn) debt and is close to defaulting ahead of emergency talks with legislators.

In a TV address on Monday, Alejandro Garcia Padilla said he would seek a moratorium on repayments and form a team to restructure public debts. White House spokesman Josh Earnest says the US government has ruled out a federal bailout for the US island. The self-governing US commonwealth has been in a recession since 2006. Legislators have to approve a $9.8bn budget on Tuesday, which calls for $674m in cuts and sets aside $1.5bn to help pay off the debt.


Speaking on Monday evening, Mr Garcia Padilla urged the central authorities to grant Puerto Rico the ability to file for bankruptcy, enabling a postponement of debt payments for several years. "Even if we increase revenues and cut costs, the magnitude of the problem is such that we would not resolve anything given the weight of the debt we're dragging," the governor warned in a TV address. "The only way we'll get out of this hole is to join forces and agree, including bondholders, to assume some of the sacrifices."

Analysis: Samira Hussain, BBC News, New York

Wall Street used to be confident that Puerto Rico would be able to find a way out of its current financial mess. But that certainty no longer exists.
In saying Puerto Rico cannot pay its $72bn in public debt, the governor has basically told Wall Street that the island is in default. On Monday, Puerto Rican bonds dropped by 12%.
But why should anyone living on America's mainland care about an island with 3.6 million people?
Unlike Greece, where large institutions hold most of its debt, the same is not true for Puerto Rico.
Much of its debt is held by individual investors in the United States, in financial instruments like mutual funds. That exposes more individual Americans to its financial instability.
Puerto Rico must now negotiate with its creditors for some kind of deal. And as we are seeing with Greece, negotiating with creditors can be a long and messy process.

[Lord Jim]

Damn those no good Puerto Ricans!

[rubato]

$72 Billion is nothing. Alabama alone has recieved $166 billion more than it has paid in federal taxes between 1981 and 2005:

Alabama's debt to the nation:
$166 Billion


Mississippi's debt to the nation:
$141 Billion


S. Carolina's debt to the nation:
$88 Billion


California on the other hand has paid $489 Billion more to the nation than we received back over that period. Almost a half trillion dollars ( or less than half of what Bush squandered by attacking Iraq. )

http://taxfoundation.org/article/federa ... -1981-2005

yrs,
rubato

[Big RR]

Of course, Puerto Rico gets its share of federal government money as well--about $22 billion a year while paying no federal income taxes. Even if we assume just half of that was the average money spent between 1981 and 2005, we wind up with $140 billion, near that of Mississippi and Alabama. But the island is defaulting on its public debts, i.e. bonds, and this is in the amount of another $72 billion.

The sad thing is, in Greece one can see the fruits of the overspending in pensions, medical facilities, etc. I'm not certain what hole the money is going into in PR. Recently my wife's aunt was in the hospital in Mayaguez (the second or third largest city on the island, so it was a major hospital) and her family was required to bring linens and other supplies and to bring them home to be laundered. They also had to purchase rubber examination gloves and dressings, even though most of the tab was being picked up by medicare (apparently these are new requirements, they never had to do that before). Likewise she was required to have a family member with her all day to attend to her bathroom needs and feeding. There are some serious problems down there, and the US aid does not appear to be helping.

[dgs49]

20+% of the PR workforce works for government. Add government retirees and others on the dole, and a HUGE percentage of the PR population is sucking at the government's capacious teats.

As PR goes, so goes the U.S.

No surprises.

[Big RR]

I'm sure that is responsible for some of the problem, but with a population of only 4 million and 22 billion a year in aid, it's about $6000 per person (and that's not taking into account local taxation), which could fund a lot of pensions and salaries (and pensions and salaries are much lower there than in the US; most retirees do OK, but not well). They also participate in social security and medicare, and most people contributed during their lifetimes and can receive benefits, pumping more into the economy. I'm not sure what the problem is, but it seems to be broader than pensions and government workers.

[Econoline]

Paul Krugman actually had a pretty good post on this yesterday.(Jim, this time I warned you, so you can ignore him...but if you choose to comment rather than ignore, I'd appreciate it if you address the substance of the post rather than just repeating for the umpteenth time "The Idiot Krugman is a poopyhead and he doesn't deserve his Nobel Prize!")

Geographical Notes on Puerto Rico
JULY 1, 2015 4:38 PM

Greece isn’t the only debt crisis boiling over right now; there’s also Puerto Rico, which I was aware was brewing but wasn’t tracking carefully. I’ll probably have a fair bit to say about the PR crisis once I get back from my current trip, but meanwhile a few notes.

Clearly, Puerto Rico’s troubles run much deeper than government debt, and there has been a lot of discussion about its underlying economic weakness. However, not much of the discussion seems to ask what seems to me to be an obvious question: what, exactly, should an economy in Puerto Rico’s position be doing?

Puerto Rico does, of course, have warm winters and beaches. But so do a number of places, and it’s a much bigger and more populous place than its neighbors – with a much smaller ratio of coastline to area or population – and is hence not as well-placed to have a tourism-centered economy. Indeed, it has historically grown largely as a center for manufacturing, especially in pharma, encouraged by special tax breaks.

But why manufacture there? There are various ways to develop a competitive advantage in manufacturing. You can have a unique skill base, like much of Germany; you can have very low wages, like a number of emerging Asian economies; or you can have a logistical advantage due to being close to major markets, like a fair bit of what remains of US manufacturing or, these days, the export belt in northern Mexico.

Puerto Rico, however, has none of these. It doesn’t have a special skill complex. Its wages are low by mainland standards, but not that low (and as I’ll argue in a moment, can’t go that low). And while it’s close to the mainland as the crow flies, it’s fairly slow and expensive to ship things in and out. In a fundamental sense, it’s not that easy to see why there should be a sizable economy on that island in that location.

Now, you might argue that this is just an argument for big wage cuts. But Puerto Rico is part of the United States, and its residents are US citizens. This tends to put a floor under wages, in several ways. The New York Fed [http://www.newyorkfed.org/outreach-and- ... -main.html] emphasizes the effects of the federal minimum wage and relatively generous federal safety-net programs (given low productivity) that may cause people to choose exit from the work force in the face of low wages. But even without that, the relative ease of emigration would tend to support wages.

Put it this way: if a region of the United States turns out to be a relatively bad location for production, we don’t expect the population to maintain itself by competing via ultra-low wages; we expect working-age residents to leave for more favorable places. That’s what you see in poor mainland states like West Virginia, which actually looks a fair bit like Puerto Rico in terms of low labor force participation, albeit not quite so much so. (Mississippi and Alabama also have low participation.)

And outmigration need not be such a terrible thing. There is much discussion of what’s wrong with Puerto Rico, but maybe we should, at least some of the time, just think of Puerto Rico as an ordinary region of the U.S.; at any given time, we expect some regions to be in relative and maybe even absolute decline, as the winds of technology and global trade shift. I wonder, in particular, whether Puerto Rico is suffering from the forces that seem to be leading to a general shortening of logistical chains and the “reshoring” of manufacturing to advanced economies.

Now, this can lead to problems of governance. Puerto Rico benefits a lot from federal programs, but it does have to pay for a lot of stuff itself, and emigration of workers undermines revenue while leaving many of the costs of serving the remaining population, notably the elderly, unchanged.

But I’d argue for paying a lot of attention to the non-specific forces affecting the island, and in particular the economic geography side. Puerto Rico may to an important extent just suffer from being a slightly hard to reach island in a time when corporations place a high premium on easy, just-in-time shipments.

[Big RR]

While I do think Krugman makes some good points, I also think he is missing some. yes, Puerto Rico doesn't have the unique skill set of a Germany, butthey do have one of the highest literacy rates in the Carribean , and certainly much higher than similarly placed low wage areas; it also has a fairly high high school graduation rate and many college graduates. It is serviced by a fairly robust infrastructure in the way of roads and utilities and while shipping is not that easy, it is also not that difficult. They also have a workforce that is easily trained and fairly loyal to their employers, and the island is easily reached from most points in the mainland US (certainly much more easily reached than places in Mexico, South America, or the Far East. Further, while many young Puerto Ricans come to the US for jobs, but there is also a strong reason to stay as many are not fluent in English and would be more employable home.

This places PR in a unique situation among "offshore" job areas. I don't think it's as cut and dry as Krugman decribes it.

[oldr_n_wsr]

And if more manufacturing were to spring up, more/cheaper shipping would follow.

[Gob]

Facing a crisis of monumental proportions at home, tens of thousands of people are fleeing a Caribbean island in search of a better life in the United States only to find hardship and struggle on American shores.

Their stories sound like those of millions of migrants – poverty at home, where the economy lies in tatters – but they differ from millions of others: they’re already American.

Unable to pay its $73bn debt, Puerto Rico has begun rationing water, closing schools and watching its healthcare system collapse and 45% of its people living in poverty. Emigration to the mainland has accelerated in recent years, activists say, and data shows that from 2003 to 2013 there was a population swing of more than 1.5 million people.

“This new wave of immigration can be compared with the immigration in the 1930s and 40s,” said Edgardo González, coordinator of the Defenders of Puerto Rico, an activist group. The Great Depression and second world war spurred the so-called “Great Migration”, when tens of thousands of Puerto Ricans moved to New York every year for nearly two decades.

Now most Puerto Ricans are arriving in central Florida, González said, but many cannot find jobs or even housing. “Some might stay with family for a few weeks, but for those who don’t have family, people end up homeless because of the lack of services,” he said.

“People end up living in hotels, living in cars or on the street. Then you have people who are homeless with kids, who get in trouble with the law, and you have to get into it with childcare and welfare services.”

In particular, González said that professionals with higher degrees were leaving the island in search of work, draining Puerto Rico of the talent it needs to resuscitate its economy and healthcare sector.

http://www.theguardian.com/world/2015/j ... s-mainland

[Big RR]

Well that is probably a pretty big problem, especially as the Hispanic areas of Miami (to which the newly arrived Puerto Ricans would go because of their limited facility with English) are populated by Cubans who traditionally do not get along with Puerto Ricans (we like to think of Hispanics as a monolithic group, but they are not). And then there is the problem that poverty in a big city like Miami is very different from poverty in a Caribbean island where one can live (although not well) fairly cheaply, and obtain fresh fruits and fish free of charge (from local trees and bushes and the ocean, rivers, and streams). Many are not ready for that (the same was true in the 40s in NYC, when the migration was to that city. And the truth is, if the situation there does not improve, this problem is only going to get worse.

[rubato]

Puerto Rico are the Wales or Northern Ireland of the US.


yrs,
rubato

[Gob]

In what way Aspergers boy?