Puerto Rico bankruptcy? Why and Where does it go next?
Some questions arise from the coming ‘bankruptcy’ of Puerto Rico, which technically cannot go bankrupt. New York and Texas have as government workers about 1 out of every 7 people in their civilian labor force, while Florida is at 1 government worker out of every 9 people. Puerto Rico is at around 1 government workers out of every 5 people. While this number has gone down from 2008 or so it did so with migration off the island. So from around 1.133 million people 229 thousand are government employees. Which hides the fact that quite a few of the industries on the island are essentially government owned and run. The quiet reality is that there is simply too few dollars entering the island and the economy has been set up in such a way as to make it impossible for it to recover. Bailing the island out will only make certain that the next time the funds needed are larger and will not solve the problem. Structurally the way it operates has to change and the whole distribution of money within the system through essential government control of all if not most major industry will end one way or another.
It does not matter that the wages are lower than in the U.S., it does not matter that the island has “tax incentives” for businesses to operate upon it. What does matter is that the nepotism and regulations on the local level essentially make certain that investing in a foreign country is more likely to succeed than in the local economy. Sales tax becoming VAT of over 10% and other improvements to make the dead economy keel over are paving the way for insolvency. Tourism is dead precisely for the fact that costs for tourists are not competitive with any and perhaps all Caribbean countries. Why would a tourist pay New York prices for steak and wine in Puerto Rico?
Where will insolvency lead? Well theoretically when payments shut down due to them being re-directed to pay creditors government employees will no longer be paid. There will probably be court battles that are ongoing and future going but none of this will make disruptions go away. If the debt Puerto Rico was nullified tomorrow, none of the structural problems go away. The sales/Vat taxes will still be there, the tourism sector will still be dead, the government overhead will still be there, and insolvency in major enterprises will persist.
It is very likely the pension debt Puerto Rico has will be nullified, or to put it more realistically pensions will stop being paid because the amount of cash coming in will not be enough to cover them. Real Estate market will have to have a complete collapse for any enticement for non-island money to pour into it.
The truth is Puerto Rico will be a test case to a degree. Of How, When, What, and to what degree things can be turned on or off and the consequences of said actions in regards to a population. Yes, I know this sounds terrible but I am an observer and my opinion is just that. I think in a certain way there was a perception by the government in PR that they could have the last say while the flows of money were kept going to ‘stabilize’ the everlastingly ‘deteriorating’ situation. The reason I say this is that funds required to keep the system afloat increase constantly as expenses rise even in a contracting economic environment. I wonder if the governor of PR ever considered making a Plan B or a Plan C where the only way out was to abrogate pensions and get rid of at least half of government workers. It would have been possible to restructure things were there some realistic movements 8 years ago, but alas wait and prey is what occurred. True there were a significant decline in government workers, but it was in the context of an exodus of people out of the island. I think to a degree the governor will be deprived of financial ability to maneuver and will be sidelined in the matters of making decisions in that sphere, and the rest will flow out of these constraints.
“The Authority will ensure the payment of debt obligations, restructure the workforce of the Commonwealth government, and reduce or freeze public pensions. It will also supervise the entire budget of the Commonwealth government, including its pension system, legislature, and public authorities; and all leases, union contracts, and collective-bargaining agreements.”*link on bottom*
Hopefully whatever happens the people of Puerto Rico will do well and it will pass quickly.
Be well dear reader, stay healthy, and hopefully summer will visit us soon.
Status economics and ideological regression
If one slowly skims through the decay of global ‘growth’ and the economic implosion underway there seem to be three or even more paths that are coalescing together.
Social groupthink is disintegrating as based by rating implosion via TV and other channels of mass conditioning. This carries with it dis-anchoring of what it is to mean of a person to belong to a specific socio-economic group. Don’t get me wrong the rich know they are rich and the poor know they are poor. The problem is in the meaning that carries forth for the people in between. These meanings are not just disappearing or being shaped into things we know nothing about but are diverging into aspects we have no understanding of in theory. Ergo imagine you are making seventy grand a year but can’t afford to buy any “assets” due to overhead such as; student loans, rent, food, insurance costs, and so on. Theoretically you are productive, yet you have no benefits other than the ongoing treadmill of your life, in an, as is condition. Without meaning or some foundation people in such ‘constraints’ burn out. This is easily seen in the treadmills of HR departments that are harvesting skill-set graduates into motion within a set environment where they have low-to-no growth prospects but are niche contributors, easily replaceable yet have no way of influencing their environment since their time constrained. Meaning is displaced by being, and there is no big idea to fill the void for people to create some sort of foundation upon. It is no longer ‘necessary’…
Social norms of what people can, may, or should do is going away. There is no religious constraint even for the fairly religious strata in society, it is simply replaced by either “I am going to get mine whatever it takes” in relation to some object, or a completely random set of behavior that makes people operate in the grey-zone of society while pretending to comply with society at large. Only fear of what may or may not happen is constraining these outward manifestations, but only to a degree. Monetary excess by some is dangled in front of public at large, while images of gluttony bombard the advertising channels of the internet, TV, radio, and other venues for the destitute to feast upon. There is some sort of idiotic self-righteousness that is put forth through the delivery of want for the sake of want because of want in idealism of want. Yet, even for people on the screen these things are hollow.
Trade and businesses are leveraged for growth in a world of imploding demand. There is no expansion of the cycle in the future unless there is a big wipe-out of inventory and credit overhead that will not go away to allow for the cycle to re-set. Even a big war would not solve this, since any aftermath demand will quickly be saturated due to better technological progress and access to raw materials already stock piled. There is no new way of doing things that allows consumers to consume without bending future demand forward by constraining credit. Other thoughts do not enter central banking heads for there is no other way to solve things in their mind. We are approaching the wall and it is us.
Imagine a world where costs are growing daily but income is imploding monthly. How long will such a world last? It may outlast you or I but it cannot outlast itself. Perhaps, prospects of evolving into some new way of social interactions is underway but I doubt it. Society is extremely set in operating the way it can, until it can’t no longer.
1) really liked this article: http://www.unz.com/ldinh/boys-ii-bums/
Financial War is over, we all lost.
Extracting future value into the present via leveraging credit up the pyramid scheme is likely at its’ end. U.S. financials are slowly crawling back into reality as their losses are becoming more clear. Non-performing for auto and student loans are periodically glimpsing at us and we feel the attempt by capital to automate as much as possible to extract the fleeting dollars of consumer demand into profits to keep alive their perceived solvency.
China is slowly emerging from a capital investment boom that turned bust and will lead to a deflationary tornado of pain for every actor involved. Consumers are being hit with higher prices and fleeting jobs as global demand for most product implodes. Cities of empty apartments that are unaffordable by most locals won’t be filled until they flood the market and clear at rock bottom prices. Unfortunately even if that does occur some won’t be able to afford ongoing costs with infrastructure and related upkeep as it relates to these buildings. Nationalism is periodically used to re-direct the energy of anger at the problems that aren’t being solved. Tariffs that are now being erected will only increase barriers faced by Chinese goods abroad
Japan is imploding as it monetizes its’ debt and consolidates the robbery of the elderly citizenry. It destroyed the hope of any new generation sprouting through wage stagnation and repressing its’ youth and the job market they participate in. It keeps attempting to push through inflation and the success it gains is reciprocated by the confiscation of purchasing power of its’ population. Yen is strengthened every time it is revealed that negative rates of monetized bonds essentially reduce the volume of its’ debt.
Europe is approaching Japanese solution to the same problem. Too many bad debts, too little capital for the banks to absorb them other than by making the destitution of the population an institutional priority. Europe is slowly attempting to exchange old problems for new problems in an attempt to reduce the number of problems by increasing the number of problems. I know complicated stuff, but it apparently does not work. Whom knew. Elite seems to be focused on furiously doing nothing, because attempting to lead or actually solve anything is not possible without upsetting someone. It seems strange to most bureaucrats and leading politicians that doing nothing is the right thing to do because it forces discipline, and outward scape-goating for self-created problems. There is a fundamental consensus that there has to be consensus even if the problem becomes deadly to functionality and well being of the system at large it may not solve it, for that solution may undermine the system, and whom knows where that will lead?
Across the spectrum the youth has been bamboozled by education that does not give fundamental skills or knowledge, student loans that create indentured servitude, and job market that provides meager-to-non-existing wages or ability to build up a career or an ability to survive in the system as it currently exists.
The elderly have been swindled by the mortgages and financialization of their savings into the perpetual investment holes of fluctuating markets, while being provided negative real rates of return throught the suppression of interest rates. Healthcare costs have been given the ability to carry loan shark growth rates in order to put to good use anyone falling into the system that needs care to suck out any savings they have.
Ah the bright future ahead of us, looking at the blazing sun where the global warming is shining bright, although it seems kind of cooler these past few decades. I know soon the message will change but until then we have this amongst a myriad of other useless distractions. Perhaps when virtual reality becomes the norm we can be provided virtual government services for which we pay real money but until then we can simply imagine them as they should be.
Strange times are upon us, and yet the vortex of yesterday is slowly making its way toward the horizon of the future. It is catching up with all the stupidity and pyramid schemes built on the numerical impossibilities tied into the weaving threads of corruption. Things always come undone at the worst possible moment, the question is; For whom?
Money, China, Consumers, and Cash Cycles.
There seem to be a strange dissonance between purchasing power available for consumers and it being embedded in the monetary system globally. As division of available free cash was pledged to more and more long term ‘capital’ in the form of loans, bonds, and other forms there formed an idea that further and further division in favor of capital would occur indefinitely and at higher exponential rates, FOREVER. Alas, we live in a finite system. Every country that attempts to industrialize rapidly runs the risk of going into an adverse cycle both in the industrial sense and cash conversion sense. Ergo it will begin to deploy factories and capacity into a rapidly declining purchasing power environment from the consumer front, as was the point of entry for China.
What would be the fix for an environment such as this? Division of cash flows between capital and labor to re-balance participation rates in the cash cycle. Giving people ability to participate more broadly in the economy would require jacking up rates to implode asset prices and give more churn in the transactional sphere. This will not happen of course.
Devaluation games such as the one China is attempting do not work. They do not work for several reasons. Competitiveness for export products through devaluation does not rise, since generally products that are embedded in the export product have to be brought from the outside at real world prices, which have their own variations in price. Devaluation is an attempt to sequester purchasing power in the capital sector at the expense of the labor sector and the consumer at large. Ergo, it attempts to create an environment where capital that was spent on excess capacity can be profitable at the expense of the environment in which it operates, because its’ destruction is feared more than the consequences of externalities emanating from these actions.
Long term and short term these costs that appear to be inconsequential, but they destroy not just the capital in question but the overall ability of the economy to function and compete in said industry. The reason is that excess capital will be competing with depreciating capital that will gain from technological progress through the cash cycle and become more cost efficient and far more dynamic. It is tantamount to a surrounded army getting more and more reinforcements as it is getting slowly annihilated while the equipment is uses is going back in time and the adversary is slowly getting newer and newer stock.
Participation in financial markets in allowing the Yuan to float will not make it enticing for those buying it as an instrument. The reasons for these are many but the most common are it maintaining purchasing power long term, ability to have instruments that provide you with yield that is over and above inflation in said currency, and ability to use it as an asset purchasing mechanism globally. Expecting others to share in the depreciation in order to grow out the monetary base and fill it with purchasing power is a folly. It is very erroneous to think that nomination of a denomination gives it convertibility or acceptability, a market does this but it has to have ease of entry and exit.
We shall see what happens.
Turkey Dark Decade ahead? (a satirical escapade)
A huge statue of Turkish former leader Erdogan is going up in Trabzon, “Bless that man” says one local named Ahmed, “if it weren’t for him none of this would have been possible” he exclaimed as his eyes welled up in emotion. It seems fitting that Laz autonomous republic under Russian guidance was formed and incorporated into Armenia giving it access to maritime trade. Once the denunciation of Treaty of Kars occurred and Kurdish independence was recognized by the United States, Russia, and Iran borders of Turkey were considerably changed. Syria regained most of Hatay province except for parts in the north that were given to the Kurds to establish maritime access. Between ten and fifteen million refugees went to Europe where their relatives helped them integrate into society. Germany had its’ population swell to 95 million as it was the most obvious choice. Most of the new arrivals were being settled in the state of Yeni Ankara formerly known as Lower Saxony.
While a blessing for some it was a true disaster for Turkey. Chaos that occurred after invasion of North-Eastern Syria and Iraq created a shock in financial markets. Lira began to plunge precipitously as most of foreign capital began to flee, capital controls were imposed and overnight it went from 3 to the dollar to 7, after a week it hit 10 and you could not get dollars anywhere but the black market, foreign reserves were almost completely depleted in futile attempts to prevent the unwinding and to refinance industry. European Union bureaucrats were running around screaming about “stability loans” and “immigration prevention subsidies” but the tumult that was unleashed could not be put back as it was before. Bread shortages occurred after two months because Russia would not export grain and other producers had already sold their forward.
On the front the army was being decimated and massive casualties collapsed any semblance of structure. The insurrection of Kurdish rebels in many places all over South-East and elsewhere created pandemonium. When the flag of PKK the ‘terrorist organization’ that Turkey tried to destroy went up in Gaziantep the expeditionary front collapsed. All reserves were thrown to re-establish Adana-Sivas-Samsun line of defense. Three hundred thousand casualties occurred when retreat north was enveloped from various forces in two cauldrons that were decimated. Millions of displaced were shutting down traffic and paralyzing the country. People went to the streets in every city demanding something, anything, but to no avail. Panic consumed every facet of daily life as famine broke out.
That was ten years ago.
Today in the year 2027 Turkey a country of 43 million people with good relations with all its’ neighbors is back on the path to prosperity. Lira is at 2 to the dollar after it was denominated and three zeros were removed, years ago. Confederation of the Straights that was modeled after Switzerland, Kurdish Republic, Syria, Laz AR within Armenia, all have good trade relations established after the government in Ankara collapsed and a treaty of complete capitulation was signed. President Erdogan in a fit of rage as he was rallying the parliament in Ankara had a stroke, but the one after him was a tranquil man that enjoyed the rebuilding process. Reparations of $150 billion dollars and 1500 tons of gold were almost completely paid off to all the actors including Cyprus which was reunited after Turkey evacuated troops from the island.
Hopefully this was somewhat entertaining and enjoyable read with food for thought.
Be well and enjoy spring.