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Blue Island on the Brink
A Greece of Our Very Own

Puerto Rico was hoping to get through the year by issuing bonds to the tune of some $3 billion. The sale was to be backed by a consortium of hedge funds, which were requiring Puerto Rico’s legislature to pass certain measures, including a value-added tax, as well as a levy on petroleum products, as a condition of their support.

Despite dire warnings from the Puerto Rico’s bankers and finance ministers as to the consequences of noncompliance, the legislature did not pass the required laws. The government’s quarterly filing to the Municipal Securities Rulemaking Board makes for grim reading. The FT:

Without a new bond sale, the government and the Government Development Bank — the de facto finance ministry — might deplete the last of their cash by September 30, the filing said.

It is now trying to find new revenue sources and areas to cut in the budget for the 2015-16 fiscal year, but the government said in the filing that it could be forced to take other, more drastic measures.

“These measures could also include a moratorium on the payment of debt service, a debt adjustment, or the utilisation for the payment of the Commonwealth’s debt service of certain taxes and other revenues previously assigned by law to certain public corporations to secure their indebtedness,” the filing said.

A deeply underfunded pension system, municipal utilities that are likely to default this year, and no bankruptcy procedures on the books for unwinding this mess as a territory of the United States, we really may have a little Greece of our very own unraveling off our shores.

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  • JR

    If only they taxed their rich just a LITTLE BIT more, all of this could have been easily avoided.

    • iconoclast

      Some readers likely believe your sarcasm is a serious suggestion. Poe’s Law in action.

      • Corlyss

        Wow! It has a name? Gee, I wish I’d known that back when I was moderating a forum on classical music. I mean, to have been able to throw out “Please observe Poe’s Law!” would have been the height of cool.

        • fastrackn1

          This blog is quite educational in many ways….

          …I often find the commentary more interesting than the articles.

          • Corlyss

            Ditto. I said some time ago that the articles have gotten so stupid that I now come for the reader commentary.

          • JR

            I come to hear other people’s opinions as well. I think I’m right but I’m aware of the fact that I’m not always right.

  • Pete

    Puerto Rico should have been given its independence long ago and sent on its merry way.

    • Corlyss

      Disagree. They should have been forced to improve the economy. Right now they are the #1 land of Lotus Eaters, worse than Ca. They can’t be trusted to be independent. They’ll be hosting ISIS operations and al Qaeda training camps and Russian naval basing and Chinese infrastructure programs if we turn them loose.

  • adk

    Add Illinois to that.

    Illinois Pension Blowup. State judges tell taxpayers to pay for political-union failure.

    http://www.wsj.com/articles/illinois-pension-blowup-1431125048

    State pensions are underfunded by $111 billion—a 500% increase from 1995 and up 75% in the past five years. About one in four state tax dollars already finances pensions, which is more than Illinois spends on education.

    …Illinois and its municipalities may soon have little choice but to raise taxes or restructure debts to pay for pensions. Chicago, whose credit rating is two notches above junk, faces a $20 billion unfunded liability for pensions and $1.1 billion balloon payment next year.

  • Jacksonian_Libertarian

    When a Government Monopoly gets too big, it will refuse to make even reasonable cuts. Like the Parasites they are, they won’t stop gorging themselves even when they are killing the host. I think a new organ of government is needed, one whose authority is equal to the legislative, executive, and supreme court, one who’s only job will be to cut unnecessary and unconstitutional spending and whose cuts can’t be overruled without a 2/3rds vote of the states.

  • Andrew Allison

    Like Greece’s, the PR goverment apparently thinks that a higher power will bail it out. It appears not to have noticed the price which Greece will be required to pay in terms of reform — or perhaps like politicians everywhere they simply hope that somebody else will make, and be blamed for, the unpopular decisions which need to be made.

  • Corlyss

    “Severe cuts to services, and perhaps even a disorderly default, are now in the cards.”
    O no! That means they’ll all be booking passage for the mainland! With the Cubans coming en masse and the Latinos on the southern border about to swamp the southwest, it will be an interesting 18 mos ahead.

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