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 Forecasting America's Destiny ... and the World's


Generational Dynamics Web Log for 27-Apr-2016
27-Apr-16 World View -- Puerto Rico headed for new financial default on May 1

Web Log - April, 2016

27-Apr-16 World View -- Puerto Rico headed for new financial default on May 1

Violence spreads across Turkey as both Turkey and PKK escalate fight

This morning's key headlines from

Violence spreads across Turkey as both Turkey and PKK escalate fight

The PKK flag hangs as armed PKK militants man a barricade in southeastern Turkey on November 15 2015 (AFP)
The PKK flag hangs as armed PKK militants man a barricade in southeastern Turkey on November 15 2015 (AFP)

Ever since the cease-fire agreement between Turkey and the separatist Kurdistan Workersí Party (PKK) broke down last year in July, the violence on both sides has been escalating. The PKK has conducted terrorist attacks, while the Turkish military has attacked PKK havens in southeast Turkey and northeastern Iraq.

In an interview with the BBC, PKK leader Cemil Bayik blamed Turkey's president Recep Tayyip Erdogan for the surge in fighting, promised to escalate the terrorist attacks on Turkish targets even further:

"He [President Erdogan] wants the Kurds to surrender. If they don't surrender, he wants to kill all Kurds. He says this openly - he doesn't hide it.

The Kurds will defend themselves to the end, so long as this is the Turkish approach - of course the PKK will escalate the war. Not only in Kurdistan, but in the rest of Turkey as well."

We donít want to divide Turkey. We want to live within the borders of Turkey on our own land freely... The struggle will continue until the Kurdsí innate rights are accepted."

The PKK has been engaged in violence with Turkey's government for three decades. The PKK and Turkey agreed to a cease-fire and a "peace process" in 2013, but that broke down abruptly last year following the July 20 terrorist attack in the city of attack on SuruÁ killing 33 people, mostly young pro-Kurdish activists. After that, the ceasefire agreement broke down, and Erdogan declared war on the PKK. ( "9-Sep-15 World View -- Turkey slips into chaos as violence spreads across the country")

Prime Minister Ahmet Davutoglu responded to Bayik's interview with the BBC:

"Nobody should doubt it. This fight, which we will carry out until Turkey saves itself from the problem of terrorism, will continue without rupture. Hopefully, as a result of this determined fight, Turkey will be saved soon from this terrorism problem completely.

Unfortunately, the international community cannot give a good account of itself and a hypocritical attitude is still embraced on the issue of terrorism. Tents of a brutal terrorist organization might be erected in European capitals and their rags [flags] might be displayed."

Davutoglu was alluding to a tent set up by PKK supporters in front of the European Council building, just two days after a major terrorist attack on Ankara on March 13, as Davutoglu was visiting Brussels. It was only after the terrorist attack on Brussels on March 22 that Belgian police ordered the tent to be taken down, but then it was set up again elsewhere. Turkish officials were furious that PKK supporters were permitted to publicize their cause just after a terrorist attack.

The PKK is listed as a terrorist group by the US and the EU. However, the Kurds are also a major US ally in Iraq and Syria, fighting the so-called Islamic State (IS or ISIS or ISIL or Daesh). The US distinguishes between the PKK versus Kurdish militias fighting ISIS, but Turkey considers all of them to be terrorists, resulting in policy conflicts with the West.

The new statements by Davutoglu and Bayik suggest that the fighting is going to escalate.

As we've been saying since 2003, Generational Dynamics predicts that the Mideast is headed for a major regional war between Arabs and Jews, between Sunnis and Shias, and between various ethnic groups. It seems now that every week brings this prediction a major step closer. BBC and Daily Sabah (Ankara)

Puerto Rico headed for new financial default on May 1

It is now all but certain that Puerto Rico will default on a $422 million debt payment due on May 1.

In January, House Speaker Paul Ryan (R-Wis.) promised that legislative action would be completed by the end of March to resolve Puerto Rico's problems before the May 1 deadline. However, Ryan has failed to accomplish this.

Puerto Rico faces $70 billion in total debt, a 45 percent poverty rate and a shrinking population, all of which threaten to cause its economy to collapse.

In many ways, Puerto Rico has gotten a free ride from Congress for years. Congress granted Puerto Rico investments a "triple-tax free" tax rate. This means that you can invest in Puerto Rico's bonds and earn 10% interest every year, and not have to pay federal, state or municipal tax on the interest you collect. There were other major tax benefits granted exclusively to those investing in Puerto Rico.

The money that investors paid for these bonds has been essentially "free money" to Puerto Rico, since nobody apparently believed that it would ever have to be paid back. As a result, Puerto Rico has felt free to spend huge amounts of money on social programs, with bills that are finally coming due.

Detroit defaulted on its debt several years ago, but it didn't really hurt too many people, because the bankrupt debt was $18 billion, and few ordinary people owned Detroit bonds, as most investors were institutions that hedged their purchases with credit default swaps.

A Puerto Rican debt default is likely to be much more widespread. The triple-tax free 10% interest deal has drawn massive amounts of money from 401k's and other ordinary investment funds. These funds will all lose significant principal in a Puerto Rico default.

Under US law, Puerto Rico does not have Chapter 9 bankruptcy protection that Detroit had. A legislative solution would involve a bankruptcy-like restructuring of Puerto Rico's debt. The Republicans are generally supporting the bondholders, the people who invested in the triple-tax free 10% bonds, who are fiercely resisting any restructuring, claiming that the only reason that they purchased the bonds in the first place was because the law made such restructuring impossible. Or if some kind of bailout is authorized, then Republicans want to impose harsh fiscal discipline on the island.

Democrats generally want to bail out Puerto Rico with few fiscal constraints. However, such a bailout would permit the government to resuming borrowing money and spending it, resulting in a continuing crisis.

One side effect of Puerto Rico's economic crisis is that it's accelerated the migration of Puerto Ricans to the mainland U.S. If no legislation is passed by July 1, then Puerto Rico will default on $2 billion in payments due at that time, causing the economy to spiral further into crisis.

Puerto Rico and Greece have in common that there is no solution to their respective financial crises. Reuters and Washington Post and AP

(Comments: For reader comments, questions and discussion, see the 27-Apr-16 World View -- Puerto Rico headed for new financial default on May 1 thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Apr-2016) Permanent Link
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