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Blue Puerto Rico Making Wall Street Rich

shutterstock_124528513Puerto Rico, despite its grave economic problems, has more than doubled its borrowing in the last decade, hitting $70 billion in 2013. Though the US territory is hemorrhaging people and its economy is growing at a paltry 0.2 percent, its government is continuing to borrow, and Wall Street is continuing to lend. Bloomberg reports:

Wall Street banks selling Puerto Rican bonds to mutual funds, money managers and individuals fueled the borrowing. Investors were lured by the debt’s tax-exempt status in all 50 U.S. states and yields above those on the mainland. In August, the binge collided with shockwaves from Detroit’s record bankruptcy and prospects for higher interest rates, sending tax-equivalent yields on the commonwealth’s bonds higher than those of Venezuela and forcing the island to turn to private lenders.

“We’ve lost credibility in the market,” said Sergio Marxuach, director for policy development at the Center for a New Economy, a nonpartisan research institute in San Juan, the capital. “We used all that money to finance current expenditures, to refinance debt that had little or no impact on the real economy.”

Puerto Rico, like Detroit before it, is relying on periodic bond sales to fund its liabilities. It’s a dangerous strategy we’ve seen in other blue locales: borrow now, pay the bills when the economy inevitably surges toward a recovery.

In Detroit’s case and in others, that recovery never happened. The government of Puerto Rico is making a dubious bet that it’s economy has already seen the worst, and that the debt payments and fees it now owes to Wall Street won’t be all that hard to cover once the bills come due.

Let’s hope they’re right. But meanwhile, it’s worth noting just how dependent blue policies and public officials have become on Wall Street. A symbiotic relationship between them has become a hallmark of blue governance all across the US.

[Puerto Rican flag image courtesy of Shutterstock]

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  • Kavanna

    It’s almost as if blue governance has degenerated into … caving in to pressure groups and payoffs to wealthy cronies … but, but … it’s about The People, right? … nah, couldn’t be … could it?

  • Pete

    This won’t end well.

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