Puerto Rico May Be the Next Detroit

Daniel Greenfield, a Shillman Journalism Fellow at the Freedom Center, is a New York writer focusing on radical Islam. He is completing a book on the international challenges America faces in the 21st century.


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Anyone talking statehood for Puerto Rico really needs to look at these numbers. We have some messed up states, but Puerto Rico is just Detroit on a larger scale.

While Detroit has preoccupied Americans with its record-breaking municipal bankruptcy, another public finance crisis on a potentially greater scale has been developing off most Americans’ radar screens, in Puerto Rico.

Puerto Rico has been effectively shut out of the bond market and is now financing its operations with bank credit and other short-term measures that are unsustainable in the long run. The biggest concern is that the territory, which has bonds that are widely held by mutual funds, will need some sort of federal lifeline, an action for which there is no precedent.

The only lifeline should involve cutting Puerto Rico loose. It’s a hole and we’ve shoved enough money down it.

Puerto Rico, with 3.7 million residents, has about $87 billion of debt, counting pensions, or $23,000 for every man woman and child. That compares with about $18 billion of debt for Detroit, with a little more than 700,000 people, or about $25,000 for every person in the city. Detroit and Puerto Rico have been rapidly losing population, leaving a smaller, and poorer, group behind to shoulder the burden.

And the population has been heading to the United States where they vote Democratic almost down the line. Part of the shift in Florida happened because there are more Puerto Ricans and fewer Cubans.

Meanwhile the average income in Puerto Rico was around 12K which leaves them even more incapable of paying off the debt than Detroit. And their unemployment rate is 13.9%.

Half the working-age men in Puerto Rico do not work. Officially, only 46% of those who are not pursuing a degree have formal jobs, compared with a United States average of 76%.

Federal transfer payments to Puerto Rico rose sharply in the 1970s. Some programmes have been modified since then, but transfers still make up more than 20% of the island’s personal income. These federal handouts reflect the sensibilities of a wealthy country. So by Puerto Rican economic standards, they are huge. And the more a man or woman earns through paid work, the more they decrease.

Puerto Ricans are eligible for federal disability payments, for example, through Social Security. Ms Enchautegui and Mr Freeman point out that, in the territory, federal disability allowances are much higher than the United States average as a share of wages and pension income. Unsurprisingly, therefore, one in six working-age men in Puerto Rico are claiming disability benefits.

Many families do not view the federal handouts as temporary. Neither does Raúl Vega, who owns a consumer-finance outfit in Aguadilla. His firm treats the benefits as income when deciding whether to lend people money for new televisions.

What do Puerto Rico’s men do all day? Some get into trouble. But many others hang out in pleasant places that require little money, such as beaches, shopping malls and the armchairs in Borders bookstores. They also watch plenty of television

One idea being considered is that Congress might establish a financial control board, perhaps like the one that helped guide the District of Columbia through a turbulent period from 1995 to 2001. One of that board’s first steps was to appoint a financial official with power to override the mayor and City Council.

So Congress would have to end up running Puerto Rico while battling constant accusations of racism. Because Puerto Rico’s problem is that it’s a welfare state that it can’t afford to pay for.

But let’s look at how Puerto Rico got into this mess.

In each of the last six years, Puerto Rico sold hundreds of millions of dollars of new bonds just to meet payments on its older, outstanding bonds — a red flag. It also sold $2.5 billion worth of bonds to raise cash for its troubled pension system — a risky practice — and it sold still more long-term bonds to cover its yearly budget deficits.

Mutual funds in particular were eager buyers; by adding Puerto Rican debt to an otherwise ho-hum portfolio, they could lift the overall yield without seeming to add much risk.

That cycle — a bountiful supply of debt feeding a seemingly insatiable demand — sputtered to a halt this summer, leaving Puerto Rico with more debt than it can easily pay. Its government must still borrow to finance its operations. Now it will cost much more to do so.

If this sounds familiar, it should be. It’s how a lot of American cities and the country as a whole got into this mess. And Puerto Rico is a welfare state that points us to where we will end up with enough Democrats in power.

Cut them loose.

  • A Z

    I have been reading about the Spanish American War. “Republican Senator Henry M. Teller of Colorado proposed the Teller Amendment to ensure that the U.S. would not establish permanent control over Cuba after the war.” -wiki/ “Failures of American Presidents by Thomas Craughwell.

    Why we did this for Puerto Rico and the Phillipines also, is a mystery. The Phillipines already had a Congress and a Constitution. Commodore Dewey thought the Phillipines could take care of themselves. For be it for politicians, business interests or journalists to listen to a military man.

    It had to be because of the business interests and worrying that some other country would take it over. Our greatest fault as a nation was taking over the Phillipines. In that regard we did better than most every nation, but it is still a black mark.

    Everything we wanted could have been had by a Status of Forces Agreements & trade treaties.

    P.S. I don’t think Craughwell mention that Teller was a Republican. Curious.

  • VHG1

    But, they vote democrat and that’s all that matters!

    • delm31_nabla@yahoo.com

      Democrats are anything but.

    • American Patriot

      There are many Puerto Ricans who vote Republican too. Quit repeating Popular Democratic Party propaganda.

  • Le Fox

    One word: IQ.

    • delm31_nabla@yahoo.com

      Who knows?

    • VLPM

      Moron, Imbecile, and Idiot .
      That’s what comes to mind when I read articles and comments like this.

  • delm31_nabla@yahoo.com

    Time to cut Puerto Rico, American Samoa, the U.S. Virgin Islands, and Guam loose. We don’t need territories or colonies. We are not an empire.

    • American Patriot

      We are not an empire. That said, Puerto Rico should become a state of the Union. Forcing the island to secede from the United States would only end up turning PR into a Communist totalitarian country controlled by Communist Cuba and its allies in Latin America. But of course, you sympathize with the radical left. Puerto Rico wants statehood and the federal government should welcome the island as a state.

  • VLPM

    Cutting and pasting ?
    Great Article………LOL

  • Hard Little Machine

    It can’t be the next Detroit. Federal funding forever guarantees that. The next Gaza, maybe but not the next Detroit.

  • José M. Díaz Carazo

    How dare anyone claim that Puerto Rico is “a hole in the United States who has shoved enough money down it”. For the record, the US Government injects $4.627 Billion per year in food stamps, Medicaid, government agencies, etc., while taking out 58.1 Billion in imports, profits from American corporations in Puerto Rico that do not stay in PR for re-investments, and the use of the US Merchant Marine monopoly. Therefore, screw the notion that the US spoon-feeds Puerto Ricans.

    • Dave M.

      That is why cutting it loose would solve everyone’s problems. The gringos would not have to pay off your debt and you could keep your $58.1 billion in profits from gringo corporations. I am quite certain that paradise would soon ensue.

      • José M. Díaz Carazo

        Sure. When the US let Detroit loose and give it to Ontario, Canada, maybe we can talk about letting Puerto Rico loose.

    • NYRican

      Thank you! People are so ignorant.