That will be a huge move, if he follows through on it. I am not sure if he has the power, though: can a President (note indefinite article)
wipe out the debt of a US territory? Can Congress, other than by paying it off? What's the mechanism for that?
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Well, I suppose that would depend. The US Government could choose to waive any debt owed by the territory to the Treasury. After all, any creditor may choose to forgive, restructure, or otherwise change the terms of the debt with the borrower's agreement. It happens all the time. But if we're talking about wiping away privately held debt, then absolutely not. I mean, yes, the Treasury could offer to repay the private creditors. Congress does hold that power. But as for "pardoning" Puerto Rico from privately held debt? No.
Could a court do it? Perhaps Trump could have his DOJ go to Federal court to argue for something like bankruptcy protections for PR. Courts sometimes void private debt in various ways.
Debt is also wiped out in bankruptcy. States can't go bankrupt, but I suspect US territories can. And given the damage to Puerto Rico and its preëxisting unrealistically heavy debt load, a case can be made for bankruptcy protection.
Bankruptcy protection also can reschedule debt and/or reduce it without completely wiping it out, which also protects creditors to an extent.
Eric Hines
I'm guessing Trump's own experience with bankruptcy is in his mind to some degree. As jaed says, there's a case that the destruction of the hurricane makes it unreasonable to expect them to service previous obligations. One of the things that bankruptcy is for is situations like this.
If Puerto Rican debt is going to be wiped out, there needs to be a change from its high-spending ways that led to bankruptcy.
Sovereign default is not cost-free. Just try to borrow money to rebuild your infrastructure after you've refused to pay $70 BILLION of other people's money.
Sounds like a dumb idea to me, no matter how it is achieved.
One of the reasons for the growth of government and taxation that we all lament is that our government had to spend money it didn't have even before federal income taxes were invented.
The history is pretty interesting reading: https://mises.org/library/short-history-us-credit-defaults
Congress passed what amounts to a special bankruptcy procedure for Puerto Rico a year or so back. Trump seemed to me to be referring to a debt cancellation as part of that process, which is what his spokesmen are now saying he meant, and I find it plausible. If debt is uncollectable, as in this case, the only real choices are to continuing carrying it on the books for whatever temporary value that fiction may yield, or more honestly write it off, often in some kind of organized restructuring.
In Puerto Rice's case, that will clean up the books of its hapless lenders, but naturally the long-term problem won't be solved unless Puerto Rice adopts the startling measure of living within its actual means. I'm not holding my breath in the case of this or any other Blue-model society. Not that Red-model societies are paragons of financial virtue, either, but they are somewhat less desperately afflicted.
I gather, via Hot Air, that bondholders are unhappy today.
They chose poorly.
As a pure play, Puerto Rican bonds might have been worth a shot--get in, get a spike, get out; or bet that things work out/Uncle Sugar bails them out. As a serious investment, they did, indeed, choose poorly.
Eric Hines
I've seen a few comments to the effect that we should repair the hurricane damage, bring PR's infrastructure up to high standards, pay off their debt, maybe provide a rainy-day fund... and then cut them loose as an independent country.
It occurs to me that Trump might have something like this in mind.
@jaed. While that's plausible and does have the potential to cut us loose from further subsidies to the PR government, I really wonder if it would achieve that goal in the long run. We're not going to be able to cut PR lose from a defense stand point lest they become destabilized and provide a staging location for terrorism. We're probably going to be talking about their subsidies just moving to the foreign aid accounts from wherever they are now for the same reason. With all the furor over immigration I don't know how it would look to grandfather in the PR citizens that have relocated to the mainland US. If Trump is thinking along those lines I'd almost rather see him propose statehood by fiat in exchange for rebuilding instead of letting PR keep playing both sides.
I don't know how much Trump thinks through second or third order effects, but forgiving PR's debt and ensuring their statehood might potentially sway their voters. Or not, in which case he'd have given away the Senate for the foreseeable future.
Christopher B, I'm not so sure about your point about defense. Cuba sits in the middle of the Caribbean, after all. Plus Puerto Rican terrorism is not unknown even as things are now.
And the PR citizens are already US citizens anyway. We'd lose citizens, not gain them, in such a scheme.
Grim, I'm not sure how forgiving their debt and making them a state makes sense. The first thing that would happen is that all the other states in trouble would start expecting the Feds to make good on their debt, as a matter of parity. Plus, yeah, there's the little problem of two senators and four or five representatives.
Anyway, I'm not really expecting a change in PR's status, but it's interesting to think about.
I'm opposed to Puerto Rico statehood; we don't need another Illinois with even worse infrastructure.
As a defense matter, I'm less concerned about the island as a terrorist haven than I am as another base for Russia--or more so for the PRC, which already is making inroads in the Caribbean along its southern coast.
Eric Hines
That was my first thought, Eric. Just what China wants, Puerto Rico as a base to operate from.
LittleRed1
The Imperial solution would indeed be to just bring in Puerto Rico as a state and use their votes to create a dominant coalition or faction vote.
How he is going to get rid of the incompetents he ridiculed in Puerto Rico, that's going to be a different problem.
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