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Thursday, August 13, 2015

Silent Run in Puerto Rico

by William Edstrom

Originally published on OpEdNews

Reposted in its entirety with permission from the author

In June 2015, Puerto Rico's Governor Garcia announced that $73 billion in
debts 'cannot be paid'. In August 2015, Puerto Rico went into default with
Governor Garcia's Chief of Staff, Victor Suarez, stating 'we don't have the
money' to pay back our debts. Puerto Rico (PR) became expendable years
ago, and has since fallen into an economic death spiral. Why, what's next
and who's next are three questions that the corporate media is avoiding, des-
pite the fact that these debt bombs bursting, elephants in the room, are ge-
tting bigger each time a new debt bomb bursts -- Stockton CA, Detroit MI,
Puerto Rico -- and that the same causes of PR's economic collapse exist at
all levels -- local, state and national -- all across the USA. The underlying
causes for debt collapses, geopolitical and economic, are intensifying nation-

The USA propped up Potemkin Places around the Soviet empire during the
Cold War to say 'look, see how great US style capitalism looks? Come to the
side of US capitalism and abandon your Soviet socialism.' We, the US, didn't
have the money to make really appealing-looking Potemkin Villages all around
the Soviet block, but former President Reagan calculated that we could finance
it. Confessions of an Economic Hit Man style, US money lenders spread out
all over the 'free world' with loan papers to sign, for example, to Sweden, the
UK, France, Spain, Italy, Greece, Turkey, Asia and Latin America, including

Czarina Katherine the Great, 1729 to 1796, was shown only what all the qu-
een's horses and all the queen's men wanted her to see, beautiful make-be-
lieve prosperous villages, named 'Potemkin' villages, to make her think that
all of Russia was one big beautiful make-believe prosperous place. During
the Cold War, people visiting from the Soviet Union's empire were shown
beautiful make-believe prosperous parts of the West, to try to trick them into
thinking that all the West was one big beautiful make-believe prosperous pla-
ce. Looks like the trick worked, because the United States's empire has, so
far, outlived the Soviet Union's empire.

To contrast US-style capitalism with Soviet-style socialism in Cuba, the US
government wrote IRS Section 936 to make products made in PR tax-free.
Gigantic government pensions including generous health-care benefits were
promised in PR, as they have been all over the USA. A US binge borrowing
spree began in 1982. Like jam spread out on toast, tens of trillions of borro-
wed dollars got spread out all over, including PR, into housing, shopping
malls, office towers, long-term temporary jobs, corporate profits and more.
PR looked better with all that borrowed money and an extra couple hundred
thousand jobs from IRS Section 936 making PR a Caribbean tax haven for
rich factory owners.

The Russians and the other Soviet-style socialists saw what glittered from
tens of trillions of borrowed dollars worth of cosmetic improvements in near-
by places like Spain (a 1930s Cold War battleground), Italy, Greece and Tur-
key. And the part of the Soviet empire in the Caribbean, Cuba, didn't glitter
half as much as PR did after tens of billions of borrowed dollars in cosmetic
makeovers to make that island look prettier, for a little while.

The US government hoped in the 1990s and beyond, to 'convert' Cuba too,
which accounts for IRS Section 936 on the books till 2006 and PR's binge-bo-
rrowing spree being allowed to fester until 2014. Certain elements of the US
government became convinced, about ten years ago, that Cuba either didn't
have weapons of mass destruction, as George Bush claimed in 2002, or that
they wouldn't use them offensively. The government's biggest fear alleviated,
they shrugged Cuba off to a more distant part of their to-do list while they tried
to create more clever ways to try to convert Cuba and they let Puerto Rico go.
In the legacy of the Cold War ashes, yesterday's Potemkin Village, Puerto Ri-
co, became expendable.

China became the top priority. The Trans Pacific Partnership (TPP) is a union
that Washington and wall street want to prop up to combat China, cold-war style.
Now, the US push is on to construct Potemkin Places around China to try to con-
vince the Chinese that US-style capitalism looks better. Proposed members of
TPP include Australia, Canada, Chile, Colombia, Japan, Malaysia, Mexico, Peru,
the Philippines, Singapore, South Korea, Taiwan, Thailand, the USA and Viet-

Living Well is the Best Revenge. More borrowed trillions plus IRS Section 936's
in different names -- like Free-Trade Agreements, World Trade Organization mem-
bership, tariff tax cuts, eliminating US government quotas on imported goods --
try to make manufacturing and the economy in TPP states look glittering and att-
ractive to China. So that, Washington and wall street hope, China collapses and
breaks up just like the Soviet Union's empire collapsed and broke up. With the
spotlight on China, Latin America has become a less important backwater, com-
plete with occasional side shows, to the Washington-wall street elite.

As wall street bankers and the hedge-fund vultures make their moves to flush,
they hope Puerto Ricans will just 'go with it' and be flushed down a toilet of
wall street's choosing. In Detroit, the Washington-wall street elite set the exam-
ple of pensions being cut to 11 cents on the dollar, after decades of promises of
generous pensions to government workers. People working for the government
in the US are becoming increasingly doubtful, angry even, at having been lied to
about their pensions, creating a divide between government people.

In PR, an island 110 x 40 miles (180 x 65 km) with 3.5 million people, the Wash-
ington-wall street elite hope to set an example of lowering the minimum wage clo-
ser to the minimum in poorer TPP states, like $5 an hour or less. With the exam-
ple made of paying only 11 cents on the dollar to retirees and a first-ever exam-
ple of lowering the minimum wage in PR, they hope they can then expand on
that to cheating people all over the USA out of pensions and wages, cutting go-
vernment expenses and boosting wall street profits. If the Washington-wall street
elite get their way by lowering the minimum wage in PR to a minimum wage
'more competitive' with China's minimum wage of $2 an hour, then where's next?

Puerto Ricans are awakening to proposals from the three-headed Goliath, the Wes-
tern Hemisphere's troika -- the government, wall street bankers & hedge fund vul-
tures -- that mean 11 cents on the dollar for pensions, lower wages, giving away
assets (e.g., airports, seaports, roads, mines, utilities) to hedge funds, destroying
the educational system and lethal health "care" cuts to life-saving medicines and
medical procedures. Which would result in Puerto Ricans who worked hard, like
cops and teachers, getting poverty as a payback for decades of hard work, emplo-
yees getting $5 an hour or less (instead of PR's current average $9.42-an-hour wa-
ge), destroying the quality of education for the children, deadly health-care cuts
that will kill (negligent manslaughter) thousands of Puerto Ricans each year, and
much higher costs for everything. Electricity bills, for example, are already an ave-
rage of $436 a month in PR. How much higher will that go? Rolling water outages,
the water getting shut off 5 days a week, are now in effect throughout PR. How
many more days each week can the water get shut off?

The largest government pension fund in PR ran out of money in 2012. The govern-
ment of PR now has $20.3 billion in 'unfunded liabilities' to pay for that insolvency.
The PR Teacher's pension plan will go belly up later this decade, leaving the govern-
ment of PR with an extra $10.5 billion in 'unfunded liabilities' to pay. PR's annual
budget was about $12 billion a year the past decade, about $9 billion a year from
taxes and $3 billion a year from borrowing for routine government expenses like ro-
ads, police and teachers. PR's $73 billion debt includes $25 billion borrowed to pay
for past monthly pension payments and $25 billion borrowed to pay for past public
health-care expenses.

Costs continue to escalate as tax revenues continue to decline and fall. PR's in an
economic death spiral. Making the death spiral worse to Puerto Rico, a colony of
the USA, is the Jones Act, which makes it illegal for PR to ship to foreign countries
or to receive shipments from foreign lands. Cargo must be shipped by more expen-
sive US cargo boats and must stop in a US port first before going to foreign lands.
This added shipping cost all but guarantees that products made in PR cannot be
competitive with foreign-made products, post IRS Section 936 and that Puerto Ri-
cans pay higher prices. US cargo corporations, however, make more profit because
of the Jones Act.

A 'silent run' on the banks has been in progress for eight years. Money on depo-
sit in banks in PR was $214 billion in 2007 and was $149 billion by March 2015
(www.ocif.gobierno.pr/documents/Q2-2013/total_assets.pdf). Puerto Ricans have,
so far, pulled $65 billion out of Puerto Rican banks to protect themselves and to
protect their money. A silent run is when people slowly take their money out of
banks, over years, leading to banks slowly closing down one by one. Doral Bank
in PR, for example, closed down in February 2015. Anecdotal evidence suggests
people in PR are accelerating their bank withdrawals to protect themselves and to
protect their money. A silent run turns into a bank run when everyone goes to the
banks at once to withdraw all their money.

Secret government talks are lingering on with hedge-fund vultures and wall-street
bankers, the three-headed Goliath, that wants everything on the table including ca-
pital controls like limiting ATM withdrawals to $60 a day until the ATM machines
run out of money. Closing down banks for a few weeks (a tactic used in Greece)
and then there's one of the scariest scare tactics used in Greek debt talks: "haircuts",
whereby government would seize a cut of everyone's bank accounts, like a third or
half of your money in the bank, to pay down some of the government's debt.

Time will tell whether PR's current silent run will accelerate into a bank run as
more people protect themselves and their money from the three-headed Goliath
of vultures, bankers and their own government in lingering negotiations on how
to devise ways to make people pay back the money that the government borrowed.
The Krueger Report, authored principally by Anne Krueger, 81, a 'front woman'
for the hedge funds, calls for higher taxes on the poor and middle class, rationing
health care, which will lead to the negligent manslaughter of thousands of Ameri-
can citizens each year, firing 20,000 teachers, firing 15,000 cops, Detroit-like 60-
minute+ waits for a response to 911 calls, etc. The mood on Main Street is that
Puerto Ricans are not going to be screwed over by this three-headed Goliath mons-
ter. While higher taxes on Anne Krueger, health-care rationing Krueger's health-
care needs, putting Krueger's great-grandchildren into Detroit or PR public schools,
cutting off 89% of Ms. Krueger's monthly pension payments and cutting off Ms.
Krueger's water 5 days a week are good ideas to save money, her Report, however,
is full of bad ideas.

Krueger Report recommendations would lead to higher unemployment, less tax
money for the government, more debt, worse education for the youth, lethal health
-care rationing, picking and choosing who gets to live and who gets negligently
manslaughtered by neglecting vital health-care and higher rates of crime. 40% of
adults in PR are employed. 60% of adults in PR are unemployed. The situation will
get worse as PR craters and tens of thousands of mostly younger Puerto Ricans flee
each year to nearby swing-state Florida as PR becomes Detroit with palm trees.
PR's current emigration rates are on a par with emigration rates from war-torn fai-
led states like Somalia and Syria.

As the USA craters with progressively bigger debt bombs bursting like Snowden
CA, Detroit MI, and PR, it's like each domino that falls is getting bigger and bi-
gger as the debt collapses in the USA get bigger and bigger. Names are circulating
of who's next, for example, Yonkers NY, Atlantic City NJ, Kanakee County IL,
Perry County KY, Chicago IL, Los Angeles CA; entire states like Illinois, Michi-
gan, New Jersey, Connecticut, California, etc., which is yet another installment
due in the USA debt-bombs-bursting story. Coming soon.

William Edstrom graduated from Columbia University in 2003. He has worked 
as a scientist for ten years, has co-authored publications in scientific journals 
such as Nature and the Journal of Biological Chemistry, and co-authored Agents 
of Bioterrorism: Pathogens and Their Weaponization, a Life Sciences textbook 
(Columbia University Press, 2005). William is a member of the Educational 
Writers Association and he has also published non-fiction work with Indepen-
dent Media organizations such as the Mott Haven Herald and Truthout's 


  1. The Jones Act only says that US Merchant Marine vessels are required when shipping between US ports, including between US mainland and US territory ports (with the exception of the USVI which is outside the US customs zone). Furthermore, Section 936 was removed at the behest of the NPP and Rossello, which somehow thought and still thinks that removing tax incentives will make it more likely that PR becomes a state. How that works logically, I have no idea, because when the issue of PR statehood comes up for review in Congress every 5 years or so, the first think Congress does is have the GAO do a budget analysis to see the impact of statehood on the Federal budget. Obviously, the more programs there are like 936, the better the budgetary impact of statehood for Puerto Rico as there would be more tax dollars going into the US Treasury from statehood, and conversely, elimination of these programs, and given the socioeconomic make up of PR requiring large amount of transfers, the worse the budgetary impact.

    1. Maybe Rosello's thinking was that if PR contributes more in taxes to the federal treasury, Congress would be more willing to consider statehood? If that's the case, we're obviously seeing how well that's working out.