HOW AN ISLAND GOING BROKE THREATENS YOU
by Lowell Ponte
According to the Constitution, no U.S. state or territory such as Puerto Rico can escape a $74 Billion debt – run up by liberal-spending, vote-buying local politicians – by declaring bankruptcy.
But the U.S. Congress opened the door last year via PROMESA legislation to something like Puerto Rican bankruptcy, thereby setting a precedent for states such as Illinois – whose irresponsible politicians have put them into an economic “death spiral” – to renege on their debts as well.
Will states “Too Big To Fail” get bailed out by a huge wealth transfer from taxpayers and unpaid bond holders in more conservative states? Is America about to suffer a potentially fatal epidemic of fast-spreading, fevered-spending, debt-ducking Puerto Rican economic plague?
How did this island of only 3.5 million people run up $74 Billion in debt? As Craig R. Smith and I explained in our book We Have Seen The Future And It Looks like Baltimore: American Dream vs. Progressive Dream, this island the Spanish named “Rich Port” has become America’s Greece, an economic basket case. It was given a special tax break that led 9 of the 12 biggest pharmaceutical companies to locate facilities there. Island politicians quickly got addicted to the drug of wild spending.
When the tax break ended and the big companies moved away, profligate politicians kept on spending as before by selling Puerto Rican triple-exempt bonds. Skilled and ambitious young people fled to the United States, even though if they stayed in Puerto Rico they would owe no U.S. income tax.
Recipients of welfare – which pays as much as most Puerto Rican jobs – stayed behind. The tax base needed to pay off the bonds collapsed, leaving pensions and 40 percent of municipal bond funds in America unable to collect what savers and retirees are owed on its bonds. The Commonwealth of Puerto Rico has become a land of the common poor as its government refused to cut spending, turning instead to heavier taxes and regulations.
Illinois is one of many states with such problems. Its leftist politicians have recklessly underfunded the lavish pension plans they promised to government employees. The state is almost $15 Billion in arrears on its debts, runs an annual deficit of $6 Billion, and has a pension liability of more than $130 Billion. Courts now control much of Illinois’ spending, and Investor’s Business Daily reports that it has “the lowest credit rating of any state,” with bonds skating on the edge of “junk” rating, which makes borrowing difficult and costly. Illinois, in other words, is broke. No wonder that for many this state’s abbreviation is “Ill.”
“We’re like a banana republic…We can’t manage our money,” says Republican Governor Bruce Rauner. But the Democrat-dominated Illinois legislature for three years has refused to cut spending and proposes only massive tax increases on the successful and businesses instead.
Illinois has the greatest outflow of residents of any state, with most telling the Chicago Tribune they are leaving because of high taxes, rampant violent crime, lack of jobs, and the state budget stalemate. This exodus would be a stampede, except for the large influx of new Latino immigrants that are a net drain on lush taxpayer-funded services in “sanctuary city” Chicago.
“The state can no longer function,” admits Democrat Illinois Comptroller Susana Mendoza. Highway contractors have already been notified that they will not be paid as of July 1. Even the state lottery might no longer pay winners. Illinois now has less growth than during the Great Depression.
Chicago Tribune reporter John Kass has a remedy for Puerto Rican plague: admit that Illinois is “a fiscally broken state” that “has finally run out of other people’s money.” He semi-seriously proposes to “Dissolve Illinois” and make “a new Midwest” by divvying up its territory among the surrounding states of Iowa, Missouri, Wisconsin, Kentucky and Indiana.
If profligate politicians are bailed out, irresponsibility with rule. Many will stop investing or buying government bonds. The dollar will lose value as trillions more are printed to finance folly. As Craig R. Smith and I explain in our latest book Money, Morality & The Machine, when money and government are debased, this bankrupts the values of individuals, our economy, and our society.
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