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News Link • Puerto Rico

It's almost as if Puerto Rico is a perfect storm of bad policy.

• https://fee.org, by Daniel J. Mitchell

That leads to an important discussion about the role of government – particularly the federal government – when there is a natural disaster (and a secondary discussion about the silly Keynesian argument that disasters are good for prosperity).

But let's focus today on a man-made disaster. Puerto Rico is the Greece of America, and it was a fiscal mess well before the hurricane hit. Indeed, there's already been partial-bailout legislation from Washington.

The Wall Street Journal opined wisely on the topic, starting with the observation that we shouldn't feel too much sympathy for investors who purchased bonds from the island's profligate government.

…they knew what they were getting into. Lenders piled into Puerto Rican bonds that paid high yields that are "triple tax-exempt"—they can't be taxed by federal, state or local governments in the U.S. Yet lenders also knew that the Puerto Rican government was heading toward a debt crisis. The economy has been contracting for a decade, and the commonwealth has $48 billion in unfunded pensions on top of $72 billion in bond debt. Creditors bet that the high yield was worth the political risk, but the music was bound to stop. One lesson of the last decade that creditors don't want to learn, even after Detroit and Greece, is that sovereign debt to lousy governments is high risk. The abrogation of debt contracts that will now take place is regrettable, but there is a price for betting on politicians.

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