Doug Casey on Puerto Rico’s Debt
Doug Casey on Puerto Rico’s Debt by Justin Spittler – Casey Research
Justin’s note: Puerto Rico’s economy is in shambles.
It’s been this way for years. But the situation went from bad to catastrophic when Hurricane Maria rocked the tiny island in late September.
The situation is now so bad that Donald Trump’s talking about wiping out Puerto Rico’s debt.
That would be unprecedented. So, to figure out what this means for Puerto Rico and its investors, I called Doug Casey…
Justin: Doug, what do you make of Trump’s suggestion? Could he really wipe out Puerto Rico’s debt?
Doug: I don’t know about the legality of Trump—as opposed to the Puerto Rico legislature—defaulting on the debt. But it’s not just a reasonable suggestion, but a good idea, and probably inevitable. I mean this tiny island of three million owes over $100 billion—about $70 billion in balance sheet debt plus another $30 billion of off-balance sheet pension liabilities. And probably a lot more in contingent liabilities, guarantees, and what-have-you. How are they supposed to pay that back?
Let’s do the math on this. Divide three million into 100 billion, and you come up with around $33,000 per person.
But that’s sugarcoating it. Because only a million people on the island work—being very liberal with the concept of employment. If you use this figure, the debt comes to about $100,000 per person.
It’s completely impossible for them to pay off this debt. Especially since it’s the poorest and most socialist-leaning part of the U.S. So, yes. Puerto Rico will default, one way or another. And it should default.
Justin: What about Puerto Rican bondholders? Are you sympathetic towards them?
Doug: These people were paid handsomely to subsidize the Puerto Rican government in a co-dependent relationship for many years. And they were very well paid with high tax-free income for years to facilitate San Juan politicians bribing local voters to re-elect them.
They assumed that the U.S. government would step in and bail them out, rather than allow sovereign default.