Much like your Uncle Rico, Puerto Rico is also in debt. But unlike your Uncle Rico, fixing this isn’t going to be as easy as repossessing a flat-screen TV.
While you were livin’ the high-life and making plans, something continued to move around you. What, life? No, American politics! This is ‘The Rundown.’ What is ‘The Rundown’ you ask? Other than a terrific action-comedy starring Dwayne “The Rock” Johnson and Stifler from ‘American Pie’, it’s our unique breakdown of major news stories that are currently hitting the political scene. In this edition we talk about Puerto Rico’s debt crisis.
Puerto Rico is Your Deadbeat Uncle
For as long as you can remember, your family has always given money to Uncle Rico.
Granted Uncle Rico isn’t necessarily the best at managing his money, but never the less each month your family kept giving him money, mostly because you liked him and thought he’ll eventually turn his life around. Also Uncle Rico had this unusual gift of getting more money from you, because once again, he’s a likable guy.
Sadly, because Uncle Rico kept getting money from you guys, he never really learned how to manage his money well. So the endless cycle of spending more while not being able to pay his old debts became a problem. The debt however has now gotten so bad that the creditors have come to collect, but even with the money that you were giving him, Uncle Rico doesn’t have enough to pay off the debt.
The situation with Uncle Rico is essentially what is happening in Puerto Rico right now. It’s the simple story of a richer government (the US), giving money in the form of tax breaks and cheap bonds to a poorer local government (Puerto Rico) that didn’t spend it very wisely. Now it’s in a $72 billion municipal debt.
Puerto Rico is your deadbeat uncle.
That Analogy Was Nice, but is There a Funny Simpsons Clip That Explains This?
America is Homer. The burning house is Puerto Rico’s debt crisis.
A Death Spiral Combo Special
Regarding to the Puerto Rico’s debt crisis, there has been a lot of talk about a “death spiral.” Funny thing however, there are actually two economic death spirals in play.
The first has to do with the concept of debt itself. As anyone with terrible debt can tell you, the more you owe, the less likely you’ll pay it back. A lot of this has to with the nature of debt itself (taking out more loans to pay for the debt you owe, higher interest rates on the new loans, ect).
The second death spiral is a little less obvious. As Puerto Rico has to tighten its belt due to debt constraints, government will provide less quality services, which in turn will make people emigrate out of the island nation onto the mainland. Thus as the individuals leave Puerto Rico, so does the tax revenue in which to pay for governmental services, hence creating another vicious cycle. Or death spiral if you will.
Puerto Rico looks to be in the middle of two death spirals. What say you Comic Book Guy?
Fiscal Conservatives Reaction to Learning How Puerto Rico Got into Debt
For the next few years, in any monetary debate, expect fiscal conservatives to use the words “Puerto Rico,” “big government handouts,” and “crippling debt” to be formed into some kind of sentence. This is definitely their, “SEE, I TOLD YOU SO!” moment for what happens when a big government keeps writing blank checks for local government municipalities. In this case at least, they look to be right.
If You Like It Then You Should Put a Ring on It: Puerto Rico Statehood or Independence?
I’m pretty sure the bane of every social studies teacher in America is the question of “how do we categorize Puerto Rico?” After all, it’s the “it’s complicated” status of federal and local relationships.
What some constitute as a “colony,” Puerto Rico is a state-esque municipality that takes its directives from the federal government and has restrictions placed on it that actual states don’t. It’s a territory that basically lives-off of federal aid. Which honestly, is part of the reason Puerto Rico and the US is in this mess to begin with. What’s worse, the Puerto Rican government doesn’t have the authority to file for bankruptcy or to restructure its debt! So its economy just continues to be in constant free fall.
Here’s an artist’s interpretation.
Right now, Puerto Rico is in this weird limbo of local government. Governor Alejandro García Padilla, of Puerto Rico, recently has asked Congress to extend new powers to the island nation so they can handle their debt more directly. The local powers he’s asking for are basically just short of statehood.
The question of statehood or complete independence of Puerto Rico has been discussed many times before. Even 2016 candidates like Jeb Bush and Hillary Clinton have an opinion on the matter. There are pros and cons to both Puerto Rico becoming the 51st state – get full benefits of US services and proper representation in Congress – or Puerto Rico becoming an independent nation – could set its own monetary policy and regulatory framework that could help them get out of debt faster. Whichever way they decide, it’s better than being in the governance no man’s land that it currently resides in.
Or to describe it in a gif.
(Photo Credits: Wikipedia, Hulu.com, Drew Carey Show Tumblr, Google Images, Congress.gov)