Well that's not the precedent. When these mismanaged governments finally throw in the towel and hand the reins over to grownups what happens is the pensions and retiree benefits get cut. Detroit just had this happen after the state stepped in and dealt with that mess. Cleveland is in the process of cutting benefits before it goes bankrupt. CalPERS cut pensions last December for retirees from Loyalton. Same thing in the private sector; GM cut retiree benefits with the help of the Federal Government. Last year the Iron Workers union saw huge pension cuts. USPS is going to have this happen as well, probably very soon; you can be very, very sure Trump and the Republicans aren't going to bail out that hot mess.
We're actually getting pretty handy at cutting retiree pensions and benefits. The deals negotiated decades ago predicated on fantastic rates of growth aren't really plausible and they eventually have to be reworked. That means cuts. That's reality and reality has, at long last, arrived for Puerto Rico.
So expect cuts. Don't believe there is some pot of gold out there filled with untaxed entities that just need to be tapped to fix everything. Its fiction and it won't happen like that.
The big reckoning after Puerto Rico is going to be Illinois. Producers are straight up evacuating IL while the state government just keeps digging itself deeper into the hole. That situation is going to set all sorts of precedents for how this nonsense gets resolved.
I've been paying attention to the situation in Illinois. All signs point towards things getting worse.
More people are moving out of Illinois than any other state. In polls residents of Illinois are most likely to say they're planning on moving to a different state. The state hasn't passed a budget in over two years, a US record for any state. Average income difference between families moving in and out of Illinois is over $20,000. The property taxes are second highest in the nation relative to COL and everyone agrees that they need to be increased to maintain the current budget. The state cut funding for all college grants programs and the average freshman class size at state schools has shrunk an average of more than 20% in two years. Illinois is the biggest exporter of students, and many never return. Pension costs are already 25% of the state budget and this is projected to increase.
The state is so deeply corrupt that bankruptcy seems inevitable. If not for the whole state at least Chicago. Madigan literally runs the state from the shadows and gov. Rauner has no real power.
The budget problems are accelerating at a frightening pace as anyone that can afford to leave the state does. The most severe issue is brain drain of the most bright and educated young people. Illinois will experience the fallout from this for decades.
If I had any money invested in Illinois I would watch this case closely. If Puerto Rico is allowed to proceed with bankruptcy to shed pension obligations Illinois will follow
> When these mismanaged governments finally throw in the towel and hand the reins over to grownups what happens is the pensions and retiree benefits get cut.
What makes it appropriate to cut obligations to creditors we call pensioners, but inappropriate to cut obligations to creditors we call 'bondholders'?
(The answer is, obviously, that our politicians are quite happy to push our elderly under the bus, in order to protect wealthy investors.)
"but inappropriate to cut obligations to creditors we call 'bondholders'?"
The part where I said bondholders should be held harmless is a fiction inside your head. When the gears finally strip the bondholders in these cases (Detroit, GM, etc.) take epic baths, and I don't shed any tears for them either. $7 billion in bondholders’ obligations in Detroit were erased, for example.
So I suppose there is little difference between supposed "creditors we call pensioners" and actual creditors; everyone gets wrecked.
We're actually getting pretty handy at cutting retiree pensions and benefits. The deals negotiated decades ago predicated on fantastic rates of growth aren't really plausible and they eventually have to be reworked. That means cuts. That's reality and reality has, at long last, arrived for Puerto Rico.
So expect cuts. Don't believe there is some pot of gold out there filled with untaxed entities that just need to be tapped to fix everything. Its fiction and it won't happen like that.
The big reckoning after Puerto Rico is going to be Illinois. Producers are straight up evacuating IL while the state government just keeps digging itself deeper into the hole. That situation is going to set all sorts of precedents for how this nonsense gets resolved.