Nine days ago, Donald Trump hinted that he would pressure investors to take a bath on Puerto Rican debt obligations, but being a mendacious prick, he has not only ditched that, but threatened to pull FEMA from the island. Meanwhile, the Republican congress wants to offer Puerto Rico a loan for disaster relief, a loan which Puerto Rico really can't afford. Once again, the U.S. government has failed this territory and its people.
Over the course of last weekend, I had an opportunity to discuss the situation in Puerto Rico with several Puerto Ricans, both inhabitants of the island who were in New York on vacation (one gentleman discussed having had family vacation plans prior to the hurricane, and taking advantage of his US sojourn to indulge in such luxuries as hot showers and access to the news) and Nuyoricans. The general mood was one of sadness, with anger towards the federal government, but gratitude to the state and local governments which are stepping in to fill the void left by the absence of a coherent federal response. In a discussion with one woman, who was wearing a PUERTO RICO T-shirt in solidarity with the people of the island, I remarked that New York City should just name Puerto Rico the sixth borough... the population is not much more than that of Brooklyn, and there are plenty of people who have a foot in both NYC and PR... people such as the people I spoke with, people such as numerous friends of mine.
Puerto Rico needs genuine help, not a doubling down on their financial straits in the guise of assistance.
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Like so much of his blather, Trump has no real power in this discussion. He COULD help with debt negotiations, but he seems to lack the attention span to understand even his own goals in such a conversation.
Like all debt issuers, Puerto Rico holds the ultimate hammer - default. It would be ugly, but it means all the bondholders get doodlysquat. That's why it virtually never happens. The debt will be restructured and the bondholders will take a haircut, or more debt-based financing will flow to the island, kicking the can down the road until the next financial crisis.
There is no hope that Puerto Rico's GDP will ever support the debt in place now. In a true single currency regime, this should never happen. We don't force Alabama to issue debt instruments for currency flows from NY or California. But like so many long-term problems that are coming to a head in this generation, we saw immense greed drive people to make very profitable short-term decisions even when the ultimate outcome was never in doubt.
That will be America's epitaph. Short term profits right up until the entire edifice collapses in a pile of rubble...
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