Puerto Rico on the Brink of Default; London and Wall Street Say `Kill Them All’

The Commonwealth of Puerto Rico, a U.S. territory, stands on the brink of a default, with $70 billion in debt, which Wall Street bloodsuckers say, should be paid by imposing brutal austerity on the island’s impoverished population. As the Washington Post very nervously commented on Dec. 1, a Puerto Rican default “would be far more disruptive than Detroit’s recent bankruptcy filing in July.”

It’s clear that only the passage of a Glass-Steagall law can address Puerto Rico’s crisis. As Pedro Pierluisi (D), the island’s non-voting representative in Congress, told the Post, “some people might say ‘this [crisis] is their problem.’ But Puerto Rico is part of the United States; you own this problem. It is not like you can ignore it.”

Like most U.S. states, Puerto Rico cannot file for bankruptcy. In the event of a default, its constitution offers bondholders guarantees that they would be paid before pensioners and public workers, as is being discussed for Detroit. Currently the government faces $37 billion in unfunded pension obligations. Reflecting the Wall Street and London killer mentality, the London Economist snarled in its Oct. 26 edition that Puerto Rico’s federal minimum wage law “creates a strong disincentive to hire.” And, it complained, its “inflated benefit payments, for disability for instance, discourage work.”

The island is in a profound recession, and has lost 54,000 residents (1.5% of its population) between 2010 and 2012; since 2006, the population has shrunk by 138,000 to 3.7 mn. It’s now experiencing the biggest mass exodus since the 1950s, as the big U.S. corporations that once employed a significant portion of the population in largely labor-intensive jobs, have relocated to countries where the cost of labor is even cheaper than in Puerto Rico—Haiti, Central America, Asia, etc.

Since 1996, the number of factory jobs in Puerto Rico has declined from 160,000 to 75,000. Unemployment is soaring: just over 41% of working-age residents have a job or are looking for one. One-third of the population relies on food stamps, and island residents are twice as likely to receive Social Security disability benefits as those on the mainland. The most thriving “businesses” on the island today are pawn shops and title-loan operations, which offer loans to people who put up their car titles as collateral.

Against this backdrop, the only way Puerto Rico has been able to fund its daily operations is by borrowing, the Post reports. Since 2000, issuance of government bonds, plus those floated by public corporations, has tripled. Because of their high yields and exemption from federal, state and local taxes, Puerto Rico’s bonds are held by three out of four municipal bond mutual funds. Last January, rating agencies downgraded the island’s bonds to just one level above junk.
JFK: Puerto Rico a Key Ally and Bridge to the Rest of the Americas

This entry was posted in Austerity & Bank Bailouts, Glass Steagall and tagged , , , , , , , , , . Bookmark the permalink.

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