Puerto Rico today advised investors that it would no longer pay general obligation debts, even though their constitution guarantees that these be paid ahead of even government workers. Never mind that such guarantees were what drove the financial markets to invest in Puerto Rico (so much for “Government guarantees”; progressive socialists take note). A couple of highlights from these (and other related) news articles:
- Adding insult to injury, Congress passed and President Obama signed into law a temporary “fix” that suspends lawsuits regarding this debt, removing any potential recourse for investors. Imagine having loaned an entity money based on a constitutional right to repayment, then having the borrower get a law passed that allows them to default and prevents you from suing to recover. How cool would that be? They didn’t even have to change the constitution! Doesn’t seem right, but what’s a creditor to do? Sue? Oh, yeah…
- Puerto Rico’s debt amounts to ~ $20,000/person. U.S. debt amounts to ~58,000/person. We’re way ahead of Puerto Rico…. unfortunately, it’s not a race. Seriously: If Uncle Sam were really a family member, and he owed in unsecured debt approximately the same amount of money as he made in a year, what would you be telling him …. ?
- Ten years ago laws giving tax breaks for manufacturers in the Puerto Rico territories expired, contributing to the beginning of the economic downturn. OK, so tax breaks for business are good; loss of tax breaks are bad. Got it.
- The legislation passed by Congress and signed into law by President Obama creates a seven-member financial oversight board for Puerto Rico’s debt. The board is appointed (by President Obama), not elected, which means we will have little direct say in their decisions. This won’t be bad, will it??
OK, so here are the take-aways: 1) Don’t loan money based on constitutional guarantees – they’re not worth the paper on which they are printed. 2) Don’t tax businesses – they might take their jobs and go elsewhere; you will just lose the ability to tax both the businesses and the employees, who will now need additional costly government unemployment services …. well, you get the drift. And 3): Don’t allow your government to spend more than they have.
Simple, really.