Debt Rattle December 30 2015
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DPC Boston and Maine Railroad depot, Riley Plaza, Salem, MA 1910 • US Companies Led the World in 2015 Debt Defaults (BBG) • China’s Unprecedented Real
[See the full post at: Debt Rattle December 30 2015]The Caribbean island of Puerto Rico — the largest United States “territory” — is broke, and a human calamity is unfolding.”
The whole paragraph is fascinating. “Broke?” Because they drew demand and productive capacity in from the future. But how far ahead can you effectively rob the future and your children? “This is a human calamity?” Why? Why not just default and wipe the slate clean? You keep what you used, keep the (over)production you built, and tell creditors to pound salt. Or if that’s not the case WHO is going to issue and enforce this “calamity” upon the people? Foreigners? How? Will they invade? The government itself? Why? Does it like harming its self? The corporations? Through what means if not through invasion or the government? The mask of “The Market will” doesn’t work so well when put like this, does it?
“Migration will rival the…Dust Bowl.” Objection your honor: speculation. It may be but it hasn’t happened yet—even the default hasn’t happened yet—and we have no idea the effects. Why would Puerto Ricans flee to Detroit or Ohio? For the awesome job markets and weather? With what money would they accomplish this migration? (BTW nice touch to insert the spurious topic of Climate Change)
“With public debt service (principal plus interest) projected to reach nearly 40% of government revenue in 2016, Puerto Rico needs a new set of economic policies.” Really? Why? Everyone thought the policies were awesome until now or they would have changed them or downgraded them years ago. Amiright? So why 40%? Why not 50%, 60% or 100%? I mean, Chicago’s still there, still expanding pension benefits at levels far higher, why not P.R.?
“But austerity will not work” Again, why? Because “we all just know”? What is “austerity”? And to whom? P.R. just paid $125M in holiday bonuses to their people a day before (presumably) defaulting on 1 Jan. Sounds like they’re taking Johnson’s advice to heart: “Austerity won’t work anyway, so party on Wayne!”
So presumably spending MORE money you don’t have will get you out of this debt spiral? Yes, if it’s an “investment-led recovery, with official measures oriented toward boosting growth.” Really? In a world of massive, unprecedented overcapacity in everything but common sense? And having the government choose the investment we should make will work, the way it worked in housing, solar, college education, arms manufacturing, and health care?
“Federal law allows such municipal debt to be restructured under Chapter 9 of the bankruptcy code in all 50 states, this does not apply to U.S. territories like Puerto Rico.” My Federal Bankruptcy law is weak but he goes on to say it’s “confusing” and nobody knows what will happen or which cases will get paid. Also doesn’t bring up that the Feds will change the law to suit them, which they are already in Congress doing. Therefore, maybe nothing will happen, as above. They’ll change the rules, bail them out, or sell them to France the way Draghi offered to sell Greece. Or maybe bomb them. It’s apparently the answer to every other problem in the U.S., why not this?
“But residents of Puerto Rico vote with their feet — the population has fallen from 3.9 million to 3.5 million.” That’s 400,000 over an unspecified time period. Sounds like about the same number that have already fled the Northern state of taxes for the south. He goes on to describe the spiral of fewer businesses, fewer people, lower revenues, and higher defaults—the same spiral affecting Chicago, Detroit, Ohio, Pennsylvania, and the high-tax North. That much is true, but not unique to P.R. or even the United States. Where would they flee? To low-tax NY or MA? France? Sweden? The E.U.? Guangzhou? Lebanon? Columbia? Zaire? Sounds like maybe we have a world-wide problem. At least P.R. has a beach.
He then propses we clear up U.S. bankruptcy law to allow “capitalism” and winners and losers, profits and defaults. We just had that—Fannie Mae was specifically written on every prospectus that it was NOT a government agency and would NOT be bailed out. Yet it was. AIG, Goldman Sachs, same thing. They were. The entire system of western stocks, bonds, companies, friends of companies, (like foriegn Toyota and UBS) wives of friends of companies (scandal of Long Island bank wives getting billion $ loans) — the entire U.S. stock market with the PPT and Q.E. — and so on. But they just change the rules because the alternative is to have consequences to price-rigging and return to true price discovery, and the declining personal power therein. Law. He’s hilarious. If there were rule of law in the last 20 years P.R. would never have got here to begin with.
Okay, so we (re)establish his rule of law and allow clear defaults. The next day $40B of debt vanishes, debt that is somebody else’s asset: Norwegian pension funds, holdings of G.E. or U.S. State’s reserves. That AIG and UBS wrote derivative default insurance on. And therefore $40B in collateral vanishes, levered at least 30:1, for $1.2Trillion leaving the system when the gavel falls. See the problem now?
We can get out of this problem, but not with thinking like this.
Regarding “Oil Crash Is Giving Ship Owners a Billion-Dollar Windfall (BBG)” article: Doesn’t take very many days at sea to wipe substantial value from these floating oil storage vessels…
Regarding “Oil Crash Is Giving Ship Owners a Billion-Dollar Windfall (BBG)” article: Doesn’t take very many days at sea to wipe substantial value from these floating oil storage vessels…
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