Most eyes have been on Greece, where events are coming to a climax. Meanwhile, a less-noticed financial collapse has overtaken Puerto Rico. That commonwealth has racked up debts of $72 billion, which seems astonishing for an island with a population of 3.6 million, not much more than Iowa. Puerto Rico’s governor now says that “the debt is not payable.” That seems to be true of a lot of sovereign debt these days. Consequently, he is trying to put together a “broad restructuring” in which bondholders would take a substantial loss.
Puerto Rico’s debt works out to around $20,000 for every man, woman and child on the island. The governor says he is trying to avoid a death spiral:
[H]e saw that the island was caught in a vicious circle where it borrowed to balance the budget, raised the debt and had an even bigger budget deficit the next year.
The New York Times reports that many Puerto Ricans, seeing the handwriting on the wall, have walked away from the problem by “leaving for the mainland in droves.” “The mainland” would be here.
If $20,000 in debt for every inhabitant of Puerto Rico sounds ridiculously irresponsible, don’t feel superior: currently, every citizen of the United States is more than $50,000 in debt. That’s over $200,000 for your family of four. The United States is not in a death spiral; I hope that is not only because our government, unlike Puerto Rico, can print dollars. While the future can be foreseen only with hindsight, it seems reasonable to fear that sovereign debt that can’t be paid will be the world’s next financial debacle.