
Puerto Rico as an Early Warning Sign - johnbh
The effects of the 2008 financial crisis remain with us today.  High consumer and government debt, low wage and economic growth have combined to make this the weakest economic recovery ever.  Plus there are demographic headwinds: the US population is getting older by the day.  But there is another aspect of our financial imbalance which will soon come to the fore: the pension crisis. Many state and local governments have promised pension benefits way beyond their ability to meet those obligations.<p>This isn&#x27;t some theoretical argument.  Earlier this year, Puerto Rico defaulted on its general obligation bonds because it couldn&#x27;t pay. As a US territory, Puerto Rico did not have the option to declare bankruptcy so Congress passed a law that allowed the commonwealth to default on its debt; in return, the commonwealth relinquished responsibility for its financial matters to a federal review board. It may well turn out that Puerto Rico is but the first &quot;state&quot; to declare the equivalent of bankruptcy. Recently there have been articles on how Illinois could well follow Puerto Rico&#x27;s example. So in this case, Puerto Rico could be the early warning of something much bigger.<p>This would not be the first time that events in Puerto Rico presaged a financial calamity.<p>As recounted in a manuscript I have just completed: It Started in Puerto Rico: The Fall of Doral Bank and the Advent of the Financial Crisis the crash in the stock price of Doral Bank on March 16th, 2005 actually was the harbinger of the crisis of confidence which befell several giant financial institutions just three years later. Just as a chain is only as strong as its weakest link, so too in financial transactions -- where confidence and trust are so prominent -- signs of trouble are first evident where the foundation is less solid.<p>Therefore, it may well be that history is repeating itself.<p>So what happens in Puerto Rico may not stay in Puerto Rico.
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DrScump
PR is a unique case. The vast majority of their deficits come from spending
commitments from well before 2008.

PR's financial mismanagement parallels Chicago more than it does any state.

