21 September 2016

Puerto Rico Series

So this is a series about another country getting into financial difficulties. I previously chronicled Zimbabwe as it went through a massive inflationary period that lasted years into the realm of ridiculousness. It eventually pushed Zimbabwe into China’s camp. Greece is still dealing with the impact of austerity measures to pay debt. Greek Series. And now, Puerto Rico appears on the horizon as the next candidate for debt default, a territory of the United States. Puerto Rico is referred to as the “Greece of the Caribbean”, somewhat ironic. What if austerity measures in Puerto Rico appear punitive, as they do in Greece, and everywhere else. How will the Puerto Ricans respond? Puerto Ricans have clashed with the United States before, an assassination attempt of President Truman and fired shots in the House of Representatives, wounding five lawmakers. There’s a huge Puerto Rican community in the United States, especially in NYC, Bay Area, and Hawaii.

In this series, I’ll be excerpting from a few books (once I read them) and laying some groundwork of historical reference. The Puerto Rican debt crisis may turn into a headline dominating issue. Its implications could resonate far and wide through Latin America. Puerto Ricans span all ethnicities, all colors. This should prove to be an interesting series.






Puerto Rico: Huge blackout after power plant fire
21 Sep 2016
A big fire at a power plant has left 1.5 million people without electricity in the US territory of Puerto Rico. The fire affected two transmission lines and caused the collapse of the electricity system across the island. Puerto Rico's Electric Power Authority has been undergoing restructuring and is seeking funds to update what it says is outdated equipment. The cause of the fire is still unclear. The blackout also caused 15 fires across Puerto Rico as a result of malfunctioning generators.

White House Announces Puerto Rico Oversight Board Membership
01 Sep 2016
The White House is announcing members of Puerto Rico's fiscal oversight board established as part of legislation to address the US territory’s debt crisis. The board is responsible for triggering debt restructuring on the island and approving the Governor's budget. Four of the seven board members are Puerto Rican. The legislation additionally put a stay on debt lawsuits against Puerto Rico and granted the island tools to restructure all of its debt. Puerto Rico owes over $70 billion overall and defaulted on $2 billion in debt on July 1. The island is in the midst of a decade-long recession, has an unemployment rate more than double the national rate and nearly half its population lives in poverty.

Obama Appoints Social Security Critic to Fix Puerto Rico’s Budget
31 Aug 2016
Andrew Biggs, an American Enterprise Institute resident scholar and architect of conservative efforts to cut and privatize Social Security, has been named by President Obama to a seven-member fiscal oversight board for the debt-ridden U.S. territory of Puerto Rico. The oversight board is tasked with balancing Puerto Rico’s budget and pursuing all avenues to pay off its massive debt, including cuts to the island’s education, police, and health care systems.

Puerto Rico to default on $779m debt
01 Jul 2016
Puerto Rico announced on Friday that it would default on $779m (£588m) of debt. Debt payments totalling just over $2bn were due on Friday. US President Barack Obama signed a bill into law on Thursday giving the island access to a debt restructuring process and halting any litigation arising from defaults. As part of the US law, the island's finances will soon come under a US federal oversight board. Puerto Rico has been struggling to make payments on its $70bn debt load.

Treasury Secretary Reminds Senate It Has 4 Days Before Puerto Rico Defaults On More Debt
27 Jun 2016
Treasury Secretary Jack Lew sounded the alarm Monday on the looming deadline for the Senate to pass legislation to help Puerto Rico with its debt crisis. The commonwealth owes a $2 billion debt payment on July 1, and its government has said it will default. Without action, Puerto Rico could be exposed to a flurry of lawsuits, which could lead to hospital closures and squeeze the island’s police force, education system and other services. The House has passed a bill to help the island restructure its debt, but the Senate has yet to vote on it.

House Passes Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)
09 Jun 2016
The U.S. House of Representatives has passed legislation to provide restructuring authority for Puerto Rico’s massive debt and establish an oversight board to address the territory’s fiscal crisis. Puerto Rico faces a debt payment on July 1 of roughly $1.8 billion.

Sanders to Senate Dems: Do You Stand with Puerto Rico or with Wall Street?
23 May 2016
As a U.S. House committee prepares to take up the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) on Tuesday, Bernie Sanders opposes the bill. PROMESA would allow Puerto Rico to restructure $72 billion in debt, while establishing an unelected outside control board to oversee the territory's fiscal matters—a top demand from Republicans. The board would not be subject to any Puerto Rican authority and is bound by PROMESA to make decisions that are in the interests of Puerto Rico’s creditors. Sanders blasted the creation of this "undemocratic board," which he said "would have the power to slash pensions, cut education and health care, and increase taxes on working families in Puerto Rico."

Republicans, Obama Administration Reach Agreement on Puerto Rico Restructuring Bill
19 May 2016
WASHINGTON—House Republicans reached an agreement with the Obama administration to provide Puerto Rico a path to restructure its $70 billion debt load. The bill would offer the island a legal out similar to bankruptcy and wouldn’t commit any federal money, a critical requirement to winning support of conservatives. Puerto Rico has defaulted on different classes of bonds, including earlier this month when it missed most of a $422 million payment, and faces payments totaling $2 billion on July 1.

This Nuyorican Superhero Represents Hope And Solidarity For Puerto Ricans
17 May 2016

Puerto Rico just got a kickass Afro-boricua superhero! Her name is name is La Borinqueña, and she’s on a mission to help the Puerto Rican community unite and fight for social justice. Named after Puerto Rico’s national anthem, La Borinqueña was created by Brooklyn-based artist and writer Edgardo Miranda-Rodriguez in response to the island’s current financial crisis and is intended to be a symbol of hope and solidarity. The cover art for the comic book, due out this fall, features La Borinqueña soaring above fellow Puerto Ricans Sonia Sotomayor, Arturo Schomburg, Lolita Lebron, Felicita Mendez, Hector Lavoe, among others.




Sanders Blasts 'Vulture Capitalists' and Colonialism in Puerto Rico
16 May 2016

Campaigning in Puerto Rico on Monday, Bernie Sanders railed against the "colonial-like relationship" that has allowed Wall Street "vulture capitalists" to profit off the debt-stricken territory's economic crisis. "It is unacceptable to me for the United States government to treat Puerto Rico like a colony during a time when its people are facing the worst fiscal and economic crisis in its history," the presidential hopeful declared in a rousing speech at a packed town hall in San Juan. "What vulture funds on Wall Street are demanding is that Puerto Rico fire teachers, close schools, cut pensions and abolish the minimum wage so that they can reap huge profits off the suffering and misery of the children and the people of Puerto Rico," Sanders said. "We cannot allow that to happen. We will not allow that to happen."



John Oliver explains Puerto Rico’s debt crisis



Puerto Rico to default on debt payment after talks fail
02 May 2016
Puerto Rico has halted a $422m debt payment due on Monday after talks to ease the US territory's crisis ended without a deal. Governor Alejandro Garcia Padilla said in a televised speech he had issued an executive order suspending payments. A further debt payment of $1.9bn is due in July. Some creditors have argued that the territory has exaggerated its crisis. Congress is in recess until the week of 9 May.

Puerto Rico’s House Passes Emergency Debt Moratorium Bill
06 Apr 2016
Puerto Rico’s House of Representatives early on Wednesday passed an emergency bill allowing the government to halt payments on its debt, throwing into doubt broader restructuring plans to stave off a financial collapse of the U.S. Commonwealth. The measure would allow Governor Alejandro Garcia Padilla to declare a moratorium on any debt payment he deems necessary, and also alter the structure of the Government Development Bank. Garcia Padilla is expected to quickly sign the bill into law. Burdened by a $70 billion debt load it says it cannot pay and a 45 percent poverty rate that has led to a steady exodus of its American citizens to the mainland, Puerto Rico faces economic collapse without a solution that either changes laws and/or involves an agreement with creditors. The introduction of the law had drawn a quick rebuke from creditors who hold the Puerto Rican government’s General Obligation debt.

Plan to Rescue Puerto Rico Advances, Led by House Republicans
24 Mar 2016
Politicians in Washington are coalescing around a financial plan to rescue Puerto Rico, just weeks before an expected major default on bond payments that would spread more turmoil through the island’s shaky economy. The plan would not grant Puerto Rico’s most fervent request: permission to restructure its entire $72 billion debt in bankruptcy. It would, however, give the island certain crucial tools that bankruptcy proceedings can offer — but only if it first comes under close federal oversight. The creation of such a board has been highly controversial on the island, where some residents and officials have called it an act of “colonialism”. If Puerto Rican officials are unable to make the budget balance with existing resources, the oversight board would have the power to do it for them — which could mean cuts in services. Much of the rescue package has been drafted in the House Natural Resources Committee under its chairman, Rob Bishop of Utah. Although the Natural Resources Committee might seem an odd place to resolve an offshore financial collapse, the committee has jurisdiction over America’s territories, which include Puerto Rico.

How Free Electricity Helped Dig $9 Billion Hole in Puerto Rico
01 Feb 2016
The power authority has been giving free power to all 78 of Puerto Rico’s municipalities, to many of its government-owned enterprises, even to some for-profit businesses — although not to its citizens. It has done so for decades, even as it has sunk deeper and deeper in debt, borrowing billions just to stay afloat. Now, however, the island’s government is running out of cash, facing a total debt of $72 billion and already defaulting on some bonds — and an effort is underway to limit the free electricity. The free power dates from 1941. Hearings will begin to determine who and what are to blame for the authority’s larger problems, especially its ancient and inefficient power plants, among the last in North America to burn oil. Culprits are expected to include the authority’s secretive purchasing managers, elected officials who wasted money on natural gas pipelines that were scrapped and an institutional hostility to wind and solar power that is hard to fathom on a breezy island where the sun shines most days.

 Faced with $9M in Debt, Puerto Rico’s Utility Appeals for Restructuring
28 Jan 2016
Puerto Rico’s main electricity provider and its bondholders are continuing negotiations to restructure almost $9 million in debt after failing to meet a deadline Friday that caused a tentative pact reached last month to be terminated. The restructuring support agreement between the Puerto Rico Electric Power Authority and its creditors expired after lawmakers failed to pass legislation by Friday to enable Prepa, as the agency is known, to lower its obligations and implement a new customer surcharge. In a sign of progress, banks that finance its fuel purchases and the utility entered into a forbearance agreement on Sunday that keeps their negotiations out of court through Feb. 12.

Faced with $9M in Debt, Puerto Rico’s Utility Appeals for Restructuring
28 Jan 2016
Puerto Rico’s main electricity provider and its bondholders are continuing negotiations to restructure almost $9 million in debt after failing to meet a deadline Friday that caused a tentative pact reached last month to be terminated. The restructuring support agreement between the Puerto Rico Electric Power Authority and its creditors expired after lawmakers failed to pass legislation by Friday to enable Prepa, as the agency is known, to lower its obligations and implement a new customer surcharge. In a sign of progress, banks that finance its fuel purchases and the utility entered into a forbearance agreement on Sunday that keeps their negotiations out of court through Feb. 12.

Puerto Rico: US calls for creditors to make sacrifices
20 Jan 2016
US Treasury Secretary Jacob Lew urged Puerto Rico's creditors to make sacrifices that would allow the territory to restructure its debt. Mr. Lew said that unless both sides made sacrifices, "there is no path out of insolvency and back to growth." Puerto Rico is in its tenth year of rescission and struggling to cope with $70bn in debt. Negotiations between the Puerto Rican government and creditors have failed. Puerto Rico defaulted on part of its debt at the beginning of January and is on track to miss larger payments in the coming months. Puerto Rico does not have access to Chapter 9 of the US bankruptcy code, the provision that allowed cities such as Detroit to restructure their debts. Puerto Rico, with support from President Obama, is pushing Congress to change that law and grant them permission to use the Chapter 9 provision. In 2015 a US judge struck down a law passed by the Puerto Rican government that would have allowed it to restructure its debt.

Puerto Rico misses second major debt payment as economy struggles
05 Jan 2016
Puerto Rico has defaulted for the second time in five months, as the island struggles with massive debt obligations and a flagging economy. Last week, the island's governor said it would pay most, but not all, of the nearly $1bn it owed. Overall, the island has a total debt load of about $70bn, which Governor Padilla has said the island cannot pay. "This is not political rhetoric, this is mathematic," Mr. Padilla said. "It's very simple, we don't have the money to pay".

Governor Alejandro Padilla has called for the island to be granted bankruptcy rights like those on the mainland. The US Congress is set to debate the issue in the coming weeks. In recent months, the governor has repeatedly warned of a humanitarian crisis that could unfold and has called on the US Congress to extend bankruptcy protections to the island. US states and territories cannot declare bankruptcy under federal law. Puerto Rico's public utilities are heavily debt-burdened, but are not allowed the bankruptcy rights that their mainland counterparts are afforded.

The island has been called the "Greece of the Caribbean”. The flagging economy and uncertainty is driving mass emigration, with an average of about 230 people leaving per day. Unemployment on the island stands at 12.5% - around twice that of the US - and around 45% of people living in poverty. The island faces a bill of around $400m due in February and a much larger $1.9bn bill in July.

Inside the Billion-Dollar Battle for Puerto Rico’s Future
19 Dec 2015
On the surface, it is a battle over whether Puerto Rico should be granted bankruptcy protections, putting at risk tens of billions of dollars from investors around the country. But it is also testing the power of an ascendant class of ultrarich Americans to steer the fate of a territory that is home to more than three million fellow citizens. The investors with a stake in the outcome are some of the wealthiest people in America.

For decades, the island had been borrowing money to pay its bills. Puerto Rico’s bonds were particularly attractive to mutual funds because they were exempt from federal, state and local taxes in all 50 states. But in 2013, after the island’s general obligation bonds were downgraded, they caught the attention of a different sort of investor: hedge funds specializing in distressed assets. These funds began buying up the debt at a steep discount, confident that this was a bet they could not lose. Not only were the bonds guaranteed by the Puerto Rican Constitution, but under a wrinkle of federal law, the island’s public corporations and municipalities — unlike those of the 50 states — do not have bankruptcy as a recourse.  Drawn by the promise of what was a 20 percent return, Mr. Paulson’s firm purchased bonds in March 2014, as did Appaloosa Management, founded by David Tepper; Marathon Asset Management; BlueMountain Capital Management; and Monarch Alternative Capital. Puerto Rico now owes its creditors in excess of $70 billion, as much as a third of it is owed to hedge funds.

Puerto Rico narrowly avoids default
01 Dec 2015
Puerto Rico has narrowly avoided a default by making a last minute payment on its outstanding debt. The Government Development Bank made a $355m (£235m) payment that was due to creditors on Tuesday. Despite the move the territory is struggling to find money for government services and future debt payments. The Governor said the territory is facing a situation where it must decide between defaulting- failing to make the payments on its debt- or cutting public services. Though Puerto Rico is a territory of the US it is not entitled to restructure its debt in the same way that state and city governments are. Representatives from Puerto Rico - including the Governor - have been making the case that the island should be allowed to undertake the same process Detroit used when it faced bankruptcy.

Puerto Rico economy: Government defaults on bond payment
04 Aug 2015
Puerto Rico has confirmed that it failed to make a debt payment at the weekend, in the latest sign of the economic crisis in the US territory. The government said it did not have the funds available to pay more than $50m (£32m) due on bonds. Puerto Rico's governor said in June that the island's debts of more than $70bn were unpayable and that its finances needed restructuring. Economists say that Puerto Rico's financial woes run deep and will take years to sort out .

Puerto Rico has $72bn (£46bn) of public debt. That makes it by far the most indebted territory or state per capita in the United States. Unemployment is at almost 14% - more than double the national average - and over the last decade there has been little or no growth, resulting in the economy teetering on the brink of oblivion.  The island has been losing 1% (around 30,000 people) a year to Florida and other parts of the US. And it is mainly the economically active young who are leaving.

 leaving.

05 September 2016

Wealth Gap Series


This series will explore the widening Wealth Gap and its impact on class and race relations, excerpting heavily from Thomas Piketty, Professor at the Paris School of Economics, who has explored the structural cause of the wealth gap in his book Capital in the Twenty-First Century published in 2014. He created quite a stir, getting both rave reviews and harsh critiques. He brought the issue of a widening wealth gap to the limelight and has shown how war mitigated extreme wealth gaps in the past. And without a discussion and resolution, war may again mitigate the current wealth gap extreme.

Capital in the Twenty-First Century by Thomas Piketty, Professor Paris School of Economics, 2014, Excerpts

The central thesis of this book is that a small gap between the return on capital and the rate of income growth can in the long run have powerful and destabilizing effects on the structure and dynamics of social inequality.

The concentration of wealth and prospects for economic growth lie at the heart of political economy. The main driver of inequality – the tendency of returns on capital to exceed the rate of income growth – generates extreme inequalities that stir discontent and undermine democratic values.

There is no fundamental reason why we should believe that growth is automatically balanced. We should put the question of inequality back at the center of economic analysis and begin asking questions first raised in the nineteenth century. For far too long, economists have neglected the distribution of wealth.




Wikipedia: Wealth inequality in the United States
The rich are accumulating more assets while the middle and working classes are just getting by. Currently, the richest 1% hold about 38% of all privately held wealth in the United States while the bottom 90% held 73% of all debt. According to the New York Times, the "richest 1 percent in the United States now own more wealth than the bottom 90 percent".

The distributive nature of tax policy has been suggested by some economists and politicians such as Emmanuel Saez, Thomas Piketty, and Barack Obama to perpetuate economic inequality in America by steering large sums of wealth into the hands of the wealthiest Americans. This claim has created much controversy and debate within the academic and political spheres.

Racial disparities: There are many causes, but inheritance might be the most important. Inheritance can directly link the disadvantaged economic position and prospects of today's blacks to the disadvantaged positions of their parents' and grandparents' generations.

In Capital in the Twenty-First Century, French economist Thomas Piketty argues that "extremely high levels" of wealth inequality are "incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies" and that "the risk of a drift towards oligarchy is real and gives little reason for optimism about where the United States is headed.




Franklin D. Roosevelt on Privileged Enterprise



Acceptance Speech for the Re-nomination for the Presidency, Excerpts
27 Jun 1936
The age of machinery, of railroads; of steam and electricity; the telegraph and the radio; mass production, mass distribution—all of these combined to bring forward a new civilization. Out of this modern civilization, economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, of labor and capital—all undreamed of by the fathers—the whole structure of modern life was impressed into this royal service.

The privileged princes of these new economic dynasties, thirsting for power, reached out for control over Government itself. They created a new despotism and wrapped it in the robes of legal sanction. It became privileged enterprise, not free enterprise. The political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor—other people's lives.

Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the Flag and the Constitution. In their blindness they forget what the Flag and the Constitution stand for.




02 September 2016

Wealth Gap Correction - War



Capital in the Twenty-First Century by Thomas Piketty, 2014, Excerpts

Inequality on the eve of WWI was as great as it had ever been. The two world wars played a central role in reducing inequalities in the twentieth century. It was the chaos of war, with its attendant economic and political shocks, that reduced inequality in the twentieth century. There was no gradual, consensual, conflict free evolution toward greater equality. In the twentieth century it was war, and not harmonious democratic or economic rationality, that erased the past and enabled society begin anew with a clean state.

The reduction of inequality that took place between 1910 and 1950 was above all a consequence of war and of policies adopted to cope with the shocks of war. A great wave of enthusiasm swept over Europe in the period 1945-1975. People felt that inequality and class society had been relegated to the past.

One major lesson is clear: it was the wars of the twentieth century that wiped away and transformed the structure of inequality. Today, in the second decade of the twenty-first century, inequalities in wealth that had supposedly disappeared are close to regaining or even surpassing their historical highs. The new global economy has brought immense inequities. Can we imagine a twenty-first century in which capitalism will be transcended in a more peaceful and more lasting way, or must we simply await the next crisis or the next war?



31 August 2016

Racial Wealth Gap



The Ever-Growing Gap: Failing to Address the Status Quo Will Drive the Racial Wealth Divide for Centuries to Come
08 Aug 2016
In the last decade, we have seen the catastrophic economic impact of the Great Recession and an ensuing recovery that has bypassed millions of Americans, especially households of color. This period of economic turmoil has been punctuated by civil unrest throughout the country in the wake of a series of high-profile African-American deaths at the hands of police. These senseless and violent events have not only given rise to the Black Lives Matter movement, they have also sharpened the nation’s focus on the inequities and structural barriers facing households of color.

America’s Financial Divide: The Racial Breakdown of U.S. Wealth in Black and White
28 Jan 2016

The major sources of wealth for most of the super rich are inheritances and in life transfers. The big reason is racial differences in access to resources to transfer to the next generation. The practices of enslavement, violence, Jim Crow, discrimination and dispossession of property have kept generations of African Americans from accruing the type of wealth that whites in the top 1 percent have today.





Most famous of all New-Deal images is “After the Louisville Flood,” by photographer Margaret Bourke-White, which features black flood victims in line at a relief agency being virtually run down by the looming white family of the “American Way” billboard beside them

29 August 2016

Inherited Wealth



Capital in the Twenty-First Century by Thomas Piketty, 2014, Excerpts

Inherited wealth is a long term process. The advantage of owning things is that one can continue to consume and accumulate without having to work. It is not an insignificant thing when one country works for another and pays out a substantial share of its output as dividends and rent to foreigners over a long period of time.

When the rate of return on capital significantly exceeds the growth rate of the economy, then inherited wealth grows faster than output and income. It is inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labor by a wide margin, and the concentration of wealth will attain extremely high levels – levels incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies.

Wealthy people are constantly coming up with new and ever more sophisticated legal structures to house their fortunes. Trust funds, foundations, and the like often serve to avoid taxes, but they also constrain the freedom of future generations to do as they please with the associated assets.



27 August 2016

Accumulated Old Wealth



Capital in the Twenty-First Century by Thomas Piketty, 2014, Excerpts

Foreign possessions became important in the period 1750-1800. It was the nineteenth century that British subjects began to acquire considerable assets in the rest of the world, in amounts previously unknown and never surpassed to this day. By the eve of WWI, Britain had assembled the world’s preeminent colonial empire and owned foreign assets. France was the second most important colonial power.

By the turn of the twentieth century, capital invested abroad was yielding around 5 percent a year in dividends, interest, and rent. A fairly significant social group was able to live off this boon. The rest of world worked to increase consumption by the colonial powers and at the same time became more and more indebted to those same powers.

France and Britain have always been countries based on private property; private wealth has always dominated public wealth. Private wealth in 2010 accounts for virtually all of national wealth in both countries: more than 99 percent in Britain and roughly 95 percent in France.