{"id":9553,"date":"2015-06-30T06:54:44","date_gmt":"2015-06-30T11:54:44","guid":{"rendered":"http:\/\/olduvai.ca\/?p=9553"},"modified":"2015-06-30T06:54:44","modified_gmt":"2015-06-30T11:54:44","slug":"bond-insurers-crash-hit-by-puerto-ricos-default-shrapnel","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=9553","title":{"rendered":"Bond Insurers Crash, Hit by Puerto Rico\u2019s Default Shrapnel"},"content":{"rendered":"<h3 class=\"entry-title\"><a href=\"http:\/\/wolfstreet.com\/2015\/06\/30\/bond-insurers-crash-hit-by-puerto-ricos-default-shrapnel\/\" target=\"_blank\">Bond Insurers Crash, Hit by Puerto Rico\u2019s Default Shrapnel<\/a><\/h3>\n<p>On Monday, Puerto Rico\u2019s government released a report that gave the municipal bond market the willies.<\/p>\n<p>Written by former World Bank and IMF economists, it vivisects Puerto Rico\u2019s finances, lays out the basic fact that the nearly $73 billion in bonds that the US commonwealth has outstanding, amounting to nearly 70% of its GDP, are of dubious value, and offers a debt restructuring strategy.<\/p>\n<p>The\u00a0<a href=\"http:\/\/www.gdbpr.com\/documents\/PuertoRicoAWayForward.pdf\" target=\"_blank\"><u>report<\/u><\/a>\u00a0is decorated with financial doom and gloom: Outmigration has caused the population to drop nearly 8% since 2006 to 3.5 million today, even while the debt kept ballooning. It contained this choice passage:<\/p>\n<blockquote><p>The single most telling statistic in Puerto Rico is that only 40% of the adult population \u2013 versus 63% on the US mainland \u2013 is employed or looking for work; the rest are economically idle or working in the grey economy. In an economy with an abundance of unskilled labor, the reasons boil down to two.<\/p>\n<p>\u2013 Employers are disinclined to hire workers because (a) the US federal minimum wage is very high relative to the local average (full-time employment at the minimum wage is equivalent to 77% of per capita income, versus 28% on the mainland) and a more binding constraint on employment (28% of hourly workers in Puerto Rico earn $8.50 or less versus only 3% on the mainland); and (b) local regulations pertaining to overtime, paid vacation, and dismissal are costly and more onerous than on the US mainland.<\/p>\n<p>\u2013 Workers are disinclined to take up jobs because the welfare system provides generous benefits that often exceed what minimum wage employment yields; one estimate shows that a household of three eligible for food stamps, AFDC, Medicaid and utilities subsidies could receive $1,743 per month \u2013 as compared to a minimum wage earner\u2019s take-home earnings of $1,159. The result of all of the above is massive underutilization of labor, foregone output, and waning competitiveness.<\/p><\/blockquote>\n<p>To fix this situation,\u00a0<em>bondholders<\/em>\u00a0are now asked to step up to the plate.<\/p>\n<p>&nbsp;<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bond Insurers Crash, Hit by Puerto Rico\u2019s Default Shrapnel On Monday, Puerto Rico\u2019s government released a report that gave the municipal bond market the willies. Written by former World Bank and IMF economists, it vivisects Puerto Rico\u2019s finances, lays out the basic fact that the nearly $73 billion in bonds that the US commonwealth has [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[6845,195,200,353,418,434,6846,3824,4254,4255,888],"class_list":["post-9553","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bond-insurers","tag-debt","tag-default","tag-gdp","tag-imf","tag-international-monetary-fund","tag-municipal-bond-market","tag-puerto-rico","tag-wolf-richter","tag-wolfstreet","tag-world-bank"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/9553","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9553"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/9553\/revisions"}],"predecessor-version":[{"id":9554,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/9553\/revisions\/9554"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9553"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9553"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9553"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}