Puerto Rico into goes full Ponzi Scheme mode

Former British Prime Minister Margaret Thatcher once said, “the problem with socialism is that you eventually run out of other people’s money.”  Her statement 30 years ago holds true to day in Puerto Rico and the United States.

Social welfare programs and mismanagement of resources have long plagued the Commonwealth of Puerto Rico.  The island which receives a total of 23.5 billion dollars per year from the U.S. government (and raises nearly 10 billion in taxes each year) has somehow managed to get into debt to the tune of more than 73 billion dollars.

With lower than junk rating the island is desperate for cash and has now done the unthinkable: transferring money from a social services program and putting it into the general fund.  El Vocero reported that the legislature has passed a bill  to transfer 120 million from the ‘Fondo de Seguro de Estado’ (the local version of Workers Compensation) to be used as part of the general fund.

The money that goes into the ‘Fondo’ comes from the salaries of the working class.  The poorly managed agency has long been in its own fiscal mess, which will only be exacerbated by the loss of these additional funds.  What happens to the average working class ‘Juan del Pueblo’ when he is injured on the job and FSE can’t pay him?

Most social welfare programs are based on the Ponzi idea, that is to say new money paying off old money.  Social Security is a perfect example.  Young workers pay into a fund which pays retired workers.  That works great until the number of retirees outnumbers the total number or payment abilities of the younger workers.

We see that occurring today with the ‘baby boom’ generation going into retirement, while fewer people are paying into the social security system in terms of a ratio of number of workers to number of retirees.

The ‘Fondo’ is paid for by wage earners who are now few and far between. With Puerto Rico’s high unemployment rate and low labor participation rates the number of people paying into the Worker’s Comp system has diminished.  It is made worse by the fact that in the next ten years about 40% of the islands working class will retire.

This is further complicated by the government’s decision to cut spending by increasing spending…  In other words, despite cuts the actual Puerto Rico budget is going up, not down and remains and unbalanced spending plan in need of financing.  With investors becoming weary of the island’s gross mismanagement practices; the legislature has gone fishing within commonwealth agencies for short term cash.

So if the island can’t pay its current debt, agencies can’t keep up payments on their electric and water service; how is the government going to pay back the money it owes to the ‘Fondo?’

Once again the commonwealth seeks to cover its open and bleeding financial wounds with short term band-aides instead of addressing the real problem.  This time they are putting wage earners in danger of not being able to receive a pay check they earned by paying a tax.

It won’t be long before the entire house of cards comes crumbling down.

***NOTE: Please, consider buying one of my books which will help this blog reach more people.  Toy Farm Lemonade, The Beagle and the Dolphin and A Puerto Rican Manifesto and my latest piece ‘Life lessons from driving lessons‘ are all available today at Amazon Kindle.

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About worleyf

Semi-retired Media Relations guy, former radio and TV reporter and legislative aide. Middle of the road Libertarian (as if that actually existed) who reviews current news items and stories, and offers an alternative point of view.
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