PUERTO RICAN LAW GIVERS SPEND LIKE DRUNKS ON RUM FOR DECADES AND NOW WANT TO WALK AWAY FROM THEIR BAR TAB

Yesterday, June 29, 2015, Alan Gomez of the USA Today reports the Puerto Rico legislature is days away from defaulting on $72 billion in debts.




During a televized speech, governor for the territory owned by the Congress, Alejandro García Padilla decreed, "Our public debt...is unpayable." And then Padilla committed the fallacy of appeal to authority by saying, "The report states even if we increased taxes and cut back spending, the magnitude of the problem is such, because of the weight of the debt we carry, that it would solve nothing."

Not surprisingly, auditors discovered that agents of Puerto Rican law givers were spending hundreds of millions of dollars that went unreported.

Between 2000 and 2012, the geniuses populating the Puerto Rican legislature tripled their debt from $24 billion to $70 billion.  According to Wikipedia, that $70 billion in debt is 68% of the Puerto Rican economy as compared to GDP.

To give you perspective, Puerto Rican law givers upped their spending with per head debt going from $6,764.37 each Puerto Rican to $19,729.43 each Puerto Rican! To give you even more perspective, per capita debt for residents of Connecticut is $5,402, the highest in the USA. With lowest debt per resident, those living in Nebraska only owe a measly $21 each resident.

Peak GDP hit the USA in Q4 2007. And yet, here the Puerto Ricans went on a spending slurge for another five years before maxing out their credit cards in the bonds markets.

Some lay blame on successive U.S. Congresses for the misdeeds of irresponsible Puerto Rican law givers. Some say the 64th U.S. Congress, with its passage of the Jones-Shafroth Act in 1917, encouraged Puerto Rican law givers to sell bonds without care selling new bonds to pay off old bonds since that act exempted Puerto Rican bonds from federal, state, and local taxes regardless of where the bond holder resides.


Meanwhile, Puerto Ricans live in a corrupt island paradise. While Puerto Ricans seemingly report to the IRS accurately taxes due on income, they fail to report this income to their own Department of the Treausry of Puerto Rico.

An indicator of corruption can be seen in the retirement age for public school teachers.  In past, public educators could retire at 47! That has been raised, barely so, to 55, for current teachers!

Since the U.S. Congress owns Puerto Rico, some have called for Congress to pass a law letting Puerto Rican legislators declare bankruptcy. So should the whole of the island be sold off to the bond fund managers holding worthless Puerto Rican bonds?

In a Chapter 7 bankruptcy, a trustee would sell off everything, giving the gains to creditors. If law givers can declare bankruptcy, then as in all bankruptcies, property in their stuff should be sold off to pay creditors. As well, legislatures should be shuttered and people should be left to their own devices without law givers. That is how real bankruptcy works.

Though some always blame bankers, millions of Main Street Americans hold shares in Puerto Rican bonds through bond funds. Execs of one of those funds, Oppenheimer, say they stand ready to hit the courts to defend their bond holdings should law givers try to stiff them.


Like the Greeks, Puerto Ricans need to face reality. Prices need to fall in Puerto Rico and as wages are prices, wages need to fall. The surest, fastest way to collapse prices is to cut government wages and not by a little bit, but by much.

If Puerto Rican law givers were to cut wages of government workers by whatever percentage needed, say 25%, current government outlay would then fall. With a bond restructuring to finance past spending and the cessation of bond issuance to stop future debt-based spending, likely Puerto Ricans could get their house in order.

Law givers never can do the right acts though. Never will they cut wages of their most protected, workers of government agencies. Law givers will run aground their countries, states and cities before they would do that.






For the latest news on Puerto Ricans and their bonds, check out Current News on the Commonwealth of Puerto Rico.

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SEVEN YEARS LATER, WHO IS TO BLAME FOR THE CREDIT CRISIS CAUSED BY THE RESIDENTIAL REALTY BUBBLE? THE U.S. CONGRESS.

Most chucklehead laugh-track TV-watching Americans would like to blame who they believe are evil commercial bankers for the credit crisis of 2008.

Most Americans are bamboozled by politicians. Politicians are too smart for Americans. Politicians easily trick Americans with speeches and TV performances.

The true culprits of the residential realty fueled credit crisis were the men and women of the U.S. Congress,  the Congressmen of the U.S. House of Representatives and Senators of the U.S. Senate.

Successive U.S. Congresses make all the rules through their law, directly and through their agencies, which they authorize. Successive U.S. Congresses caused the residential realty crisis and largest credit bubble in U.S. history through their agencies.

The U.S. Congress through its agencies bundled up mortgages into securities known as mortgage-backed securities (MBS) and hired investment bankers to broker those securities. Successive U.S. Congresses created Government Sponsored Enterprises, GSEs, which make MBS. These GSEs are the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Agricultural Mortgage Corporation (Farmer Mac).

Another player for the U.S. Congress, the Government National Mortgage Association (Ginnie Mae) did not issue MBS. However, Ginnie Mae technocrats provided backing for MBS by guaranteeing investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

When all hit the fan, the U.S. Congress made for-profit Private Mortgage Conduits into their scapegoats. A PMC is a firm created to purchase and pool house loans and ready such for sale as securities. PMCs are the private sector equivalents of the GSEs. In the period of 2003 to 2007, PMCs were affiliates of major firms — GMAC Mortgage, Bear Stearns, Citimae of Citicorp, Countrywide, GE Capital Mortgage, Prudential, Ryland.

According to the Federal Reserve, from their own numbers on Mortgage Pools or Trusts, from 2003 to 2007, the outstanding principal balances of mortgage-backed securities insured or guaranteed by GSEs grew 48.1%, growing at a rate of 8.2% a year. In the same period, the outstanding principal balances of mortgage-backed securities of PMCs grew at an eye-poping 242%, growing at 27.9% a year!

It is from these figures that laying blame on PMCs seemed all too easy. What was a 79%-21% split at the start of Q1 2003 became a 60%-40% split by Q4 2007.

However, for every $1 of PMC MBS, there was $1.35 of GSE MBE. Total Congress involvement through GSE and direct agencies Ginnie Mae and the FHA came to $1.50 for every $1 of PMC MBS.

Said another way, Congress involvement was one-and-a-half times that of PMCs. Congress involvement in MBS and MBS guarantees between 2003 and 2007 was 50% bigger than all private involvement combined.

Of course, members of successive Congresses couldn't have done this without having enough voters put them into office. They could not have gotten those voters without first either giving them or appealing to their desire for welfare — Social Security, Medicare, Medicaid, SNAP, TANF, Section 8, Pell and many more programs.

During the residential realty credit bubble, there were far too many who borrowed way too much, well beyond what their incomes could support, overpaying way too much for houses they could not afford at the selling prices they should not have paid. Far too many played the game of "getting rich quick" by flipping taking out even bigger mortgages using the proceeds of each flip to buy cars and luxury vacations.

Ah, greed — striving to get something without giving up something in trade — is a horrible error. Oh so many borrowers were greedy with their big eyes seeing dollar signs as they  became flipping realty for big profit geniuses. It's hard to have sympathy for people driven by greed.

Commercial bankers weren't greedy. Commercial bankers sold a product — their credit — and bought a right of action in a purchase and sale from those seeking mortgages. Bankers played by the rules.

People buying houses, taking out HELOCs to buy shiny new BMWs, Mercedes and Ford Expeditions, cars that were once priced beyond their incomes, reckoning they could pay off their HELOCs when they flipped their houses for higher prices, well, that's greedy.

Far too many borrowed too much, many of whom never should have borrowed ever based on their incomes and the potential for price rises in other necessities. As soon as gasoline prices hit highs, many couldn't pay mortgages and drive to work. A little thing like rising gasoline prices drove them to default and technical bankruptcy.

Investors buying mortgage-backed securities, which bundled mortgages based on faulty interpretation of statistics, suckered by blue-skies sales pitches, well, that was stupid. MBS investors were stupid.

And for the last seven years, Federal Reserve central bankers have been taking on these junk MBS, effectively bailing out the previous owners of MBS.



American borrowers were greedy. Blaming businessmen for engaging in business puts the blame where no one should.

Here is an interesting graphic published by the New York Times.

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MIKE "MISH" SHEDLOCK VS ROBERT "THE SHILL" SHILLER; ALSO, THE REALITY OF PROFIT, PROSPERITY, DOOM, AND CRISES

Today I read that Ph.D. economist Robert Shiller who works at Ivy League Yale believes the average work week in manufacturing is an trustworthy indicator of recessions. Shiller is best known for the Case-Shiller residential realty index. 

The chart looks quite a bit like any stock index chart. Whenever the average hours failed to hit a new high following an interim low, recession soon followed. From a look at the chart, the time to recession seems to have come no later than two years from the failed peak.



Without doubt, the average hours worked in manufacturing is not an indicator related to trade expansions, trade recessions or trade depressions. An average of 42 hours worked a week signals nothing.

All trade crises arise from lost confidence in forthcoming profit. By lost confidence it is meant that bankers no longer believe they can get paid.

Without banking and bank credit, there could not be any crises and attendant panics. Many have posited many theories in effort to explain the causes of crises and panics. At the root of all crises leading to reckonings is the undue expansion of credit for which no profit shall be forthcoming.

As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, trade, which is what any "economy" is all about depends on two factors — property and profit. Without profit from effort, anyone would lack buying power to buy anything else. Without property, no one can trade. 

Though credit is indispensable to advance trade, often, credit becomes priced too cheap and thus too easily acquired. What results is inflation until a bubble bursts and panic arises.

Before crisis and subsequent panic, there must be prosperity. Employment, the state of hiring workers, shows most reliably the presence or absence of prosperity. Signs of prosperity include high prices, high wages, everyone being optimistic, people spending with ease. 

The march toward crisis arises when the profit squeeze hits. The further into prosperity, when profit margins in all lines of business narrow, many no longer can afford to accept losses from others. Thus, avenues of credit to such unworthy ones get closed disabling them from the means to service debt. 

In prosperity leading to crisis, production of new property as wealth traded by purchase and sale slows while estimates of future prices rise for extant property that could become wealth.

As the number of new firms and new securities listed increases, the danger of a crisis followed by a panic increases. When politicians award big municipal boondoggles at an increasing rate, the peak has come. When orders rush in, competitors work overtime, prices rise, these are the siren sounds of pending doom.

Signs of doom include the following. The riskiest stocks sell at the highest prices. Bankers-to-consumers and bankers-to-firms interest rates have risen. Bond prices have fallen. Bond yields haven risen consistently. Commercial paper yields have risen consistently. Commodity prices have risen consistently.

Prices of merchandise continues to rise because excess consumer credit puts buying power in the hands of consumers while available merchandise falls. This fall in merchandise arises from the credit squeeze hitting sellers.

Crisis is the pivot point between Prosperity and Reckoning. It is when all those who have undertaken too much credit for trade find themselves lacking income to service debt and ongoing operation from extant capital structure.

The further credit gets stretched, the worse is the break when it comes. Through the agency of credit, a great number of duties payable in cash get created. If the call for liquidation of outstanding credit becomes widespread, panic follows.

During a crisis, enterprise-undertaking adventurers pressure bankers to accommodate with easy credit.

When it becomes necessary to adjust the whole industrial machinery to a level of capitalization for net profits to yield ample return, the name for such adjustment is reckoning. Forced liquidation results in declining prices of assets and reveals ever more who can fail to meet debt obligation outstanding. When speculative gains from a credit expansion fail to meet the demands of credit liquidation reckoning, a period of trade depression arises.

Every crisis has the panic part. Panic is the scramble for the exits. Panic is the rush to exit credit positions. Crisis is the storm. Panic is the scuttling.

The word shill entered into English in 1916 meaning one who acts as a decoy for a gambler, auctioneer. 

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YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE

"What’s keeping people from buying houses is the fact that other people aren’t buying houses. If there were some sense that a bottom was forming in the market or in house prices, we probably could actually see a pretty quick snap-back, an increase in housing demand, and that in turn would feed back into the credit markets, I think, in a very beneficial way. So there’s the possibility that, if the housing market can get restarted, we could get a relatively benign outcome." ~ Ben Bernanke, then Chairman of the Federal Reserve and Economics Ph.D., MIT, from the January 29–30, 2008, Meeting of the Federal Open Market Committee of the Federal Reserve

Today, the Federal Reserve System, the privately-owned, monopoly bankers' bank established by Congress and President Wilson in 1913, released documents from the 2008 Banking Crisis, which key executives revealed their beliefs about banking, credit and trade. The quote of Bernanke above is one of the many silly-minded beliefs expressed by a handful of men and women who lord over the lives of all Americans because they control the Federal Reserve and thus all of banking and credit for Americans.

Too bad Ben Bernanke has no idea about what keeps people from buying houses. Too bad for us, a Congress and President Wilson back in 1913 decided that a central bank monopoly should be created to govern over all of banking, naming it the Federal Reserve, and entrusting guys like Ben Bernanke to run it.

Bernanke seems to believe that Americans are mindless lemmings who buy houses on whims merely because they see others buying houses on whims.

There is one great axiom that governs all of trade, the Axiom of Profit. The Axiom of Profit holds the sum of sales must at least equal the outlays for production otherwise, the producer goes to ruin. And for wage earners, the Axiom of Profit is alike — the sum of wages (income) must at least equal the outlays for living, otherwise the wage earner goes bankrupt.

Almost all persons rely on obtaining mortgages for buying houses. When prices for houses rise too high, and when the sum of wages fails to equal outlays for taxes, gasoline, heat, food and the like, the wage earner lives at a loss and thus falls to ruin. 

What kept people from buying houses past the peak of the realty bubble is that all those could buy on the way up, already bought. There were no other Americans willing to buy. Everyone else, even if they had profit from the sum of wages exceeding their outlays for living, were unwilling to pay prices for houses and take on debt service. Mostly though, almost all of those who didn't buy couldn't buy at the offer prices and still break even.

What a Residential Realty Bubble Looks Like

Even those who had bought began to live at losses when prices for gasoline rose high enough to push them into the red. Once the avalanche of collapse began, many mortgage-serving wage earners lost their jobs and thus their wages. Widespread collapse of the general economy followed.

As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, profits and prices are the key indicators, which give signals for trade among a people. The Law of Prices and the Axiom of Profit reveal the true governing forces irrespective of markets-meddling political action. 

The key factors that must be watched are bank deposits and profits. Any banker worth her salt, will tell you bank deposits aries from discounting and re-discounting commercial paper, from loans and from profits. Deposits represent buying power and lead to rising prices when deposits outstrip property production. Rising prices crimp profits, eventually causing losses for many, leading to collapse.

No where in the discourse among powerful Federal Reserve executives can anyone find discussion about deposits, deposit growth, profits, falling profits, losses and prices. No where did these men and women with their fancy academia credentials discuss the crucial relationship between deposits growth and profit or loss growth for what was a $14.8 trillion system of trade, 95% of which was based on credit.

The Federal Reserve needs to be stripped of its power in setting interest rates. It doesn't matter who sits as Chairman of the Federal Reserve. A handful of men and women lack omniscience and without doubt are not smart enough to know what should be the interbank lending rate and what should be lending and borrowing rates for commerce. 

As I explained in WHY FUTURES MARKETS SHOULD SET THE FEDS FUNDS RATE RATHER THAN THE FEDERAL RESERVE BOARD OF GOVERNORS that through the brilliance of a futures market, Americans could safeguard their livelihoods for all time returning to freedom, returning to living among a people who get rich from earnest effort rather than political connection.

For his adult life, prior to getting the appointment at the Federal Reserve, Ben Bernanke worked as a school teacher, spreading the mythology of economics to young minds. Bernanke never worked in banking nor held any job related to credit, the chief material of buying and selling, the whole of trade, or what many call "the economy".

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WHAT RECOVERY? XMAS IS A BAH-HUMBUG FOR AMERICANS

Katherine Poythress of the San Diego Union-Tribune reports that nationwide, retail sales reveal the abysmal state of the economy.

_"Retail traffic plummeted 21 percent last week, and in-store sales decreased 3.1 percent from the year before*, dashing retailers' hopes that the final stretch before Christmas would offset soft sales numbers earlier in the holiday shopping season."

That data comes from ShopperTrak. 

In spite of the continued cheerleading from many, it is hard to not see that Americans have been living in depression times after a long credit boom followed by a banking crisis and then a long reckoning. 

Reuters reporters are telling an alike story. 

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