While Greece may have kicked the can for the time being by imposing a third bailout whose terms are sure to led to the terminal collapse of the Greek economy (which has already moved on to barter), and lead to yet another in the immediate future, a bailout which even the IMF now openly opposes demanding a concrete debt haircut before it participates with more funds, the insolvency soap opera is about to jump the Atlantic to Puerto Rico where a default is now just 48 hours away.
As a reminder, August 1 is the due date for Puerto Rico's public agencies to make close to $200 million in bond payments. Next month, the commonwealth is on the hook for $635 million in payments. Over the next 12 months, it has to cover over $5 billion in bond payments.
Last month, Puerto Rico Governor Alejandro Garcia Padilla announced that the commonwealth was no longer capable of making payments on its $72 billion dollars in public debt. Not long after his declaration, Puerto Rico's Power Authority narrowly avoided default with a last-minute $128 million bridge loan so it could cover a $415 million payment.
As further reported before, just like in the Greek case, the biggest immediate losers would be the island's creditors: a consortium of 34 hedge funds and bondholders called on the Puerto Rican government to avoid a $72 billion default by boosting taxes, selling off public properties and cutting government spending as well as reducing its support for public education. They stopped short of suggesting a Greek "solution" where sovereign assets are held in escrow for the benefit of creditors.
The creditors cited a report they had commissioned that was drafted by three former International Monetary Fund economists who faulted Puerto Rico for boosting spending on education by $1.4 billion over the last 10 years even though enrollment had dropped by 25 percent.
But while the Puerto Rican creditors' bargaining power on the island is to put it mildly, negligible, especially after the budget director made the imminent default into a crusade of poor versus rich, saying he won’t redirect cash from its operating budget to make debt payments, an unexpected supporter has emerged thousands of miles from the beleaguered island: New York's socialist mayor Bill DeBlasio.
As CBS reports "New York City Mayor Bill de Blasio demanded President Obama and Congress immediately come to the island's fiscal rescue."
"It's the federal government's obligation to act, because they can't stand idly by and watch Puerto Rico fail," de Blasio told a crowd of hundreds of Puerto Rico boosters gathered on the steps of City Hall.
New York City Council Speaker Melissa Mark-Viverito characterized the hedge funds that hold much of the commonwealth's outstanding debt as "vultures that are eating off the misery of Puerto Rico" because the funds want cuts in Puerto Rico's spending, including for public education.
In other words, socialists are hoping to show those "evil vulture funds" by... paying them off?
The "uses of funds" confusion wasn't limited to just the two: joining de Blasio and Mark-Viverito on the steps of City Hall were dozens of other elected officials, including City Comptroller Scott Stringer and Public Advocate Letitia James as well as several of New York City's top labor leaders. Similar high-profile protests were held in Washington, D.C., and Orlando, Florida.
Organizers of the nationwide event, with an eye toward 2016, emphasized that millions of Puerto Rican voters in the U.S. were watching how Washington is responding to the crisis.
Several speakers referenced Puerto Rico's depression-like economic conditions in rejecting calls for additional austerity as a way to keep bondholders current. Today, 45 percent of the island's residents live in poverty, and just 43 percent of its potential labor force is working. The desperate economic conditions have also sparked a mass exodus of young people who have left in pursuit of off-island job opportunities.
De Blasio and the coalition of Puerto Rico supporters used the demonstration to announce a five-point federal rescue agenda for Puerto Rico that includes:
- Calling on President Obama to create a federal investment plan that "grows the economy with good paying jobs" with a focus on the health care and clean energy sectors. The action agenda also calls for the clean up of Puerto Rican islands that were contaminated by years of Pentagon target practice and weapons testing.
- Rolling back federal regulations like the Jones Act, which requires that all maritime trade cargo between Puerto Rico and the U.S. mainland be carried on U.S.-flagged commercial vessels. Island boosters want Congress to repeal the act saying it hurts island consumers and businesses by raising shipping costs.
- Calling on Congress to pass legislation to grant Puerto Rico a Chapter 9 bankruptcy option to give the commonwealth the kind of flexibility Detroit had in reorganizing its finances.
- Requesting that President Obama convene his Working Group on Financial Markets to bring all of Puerto Rico's public debt stakeholders together to negotiate a "fair" debt repayment plan as well as explore a loan from the Federal Reserve.
- Asking both President Obama and Congress to "oppose severe austerity and wage reduction proposals" that would target "poor and working families."
One wonders just how much of this sudden concern for the troubled island is a geniune socialist concern for one's fellow suffering man, and how much is pandering to potential Puerto Rican voters of which NYC has an abundance.
One thing, however, is certain: in the end the creditors will win, and US taxpayers will somehow end up on the hook yet again, because if it hasn't been made abundantly clear over the past 7 years, that's the modus operandi of the New Normal.