The Fed could have helped out Puerto Rico, here’s why it didn’t

by | Jul 1, 2016 | Economy, Headlines | Comments

About a month ago, Senator. Bernie Sanders requested the Federal Reserve to support Puerto Rico with emergency loans, which could eventually lead the island to a bailout.

During a visit to Puerto Rico in May, Sanders stated that “if the Federal Reserve could bail out Wall Street, it can help the 3.5 million American citizens in Puerto Rico improve its economy and lift its children out of poverty.”

According to Sanders, the Federal Reserve should use its emergency authority to provide Puerto Rico with the finances it needs under Section 13(3).

On June 21, the Federal Reserve Chairwoman Janet Yellen visited the Capitol Hill for her semiannual testimony. There were many issues discussed in this testimony ranging from the consequences of Brexit to the economy of Puerto Rico.

When asked about a bailout for Puerto Rico, Janet Yellen stated the following;

“[A bailout of Puerto Rico] is inherently a matter for Congress, and not a matter for the Fed. It is not something that’s appropriate for the Federal Reserve.”

Janet Yellen believes that the Federal Reserve should not be held responsible for paying Puerto Rico’s bills, even if the island is unable to afford to pay the debt.

Mrs. Yellen has told the panel that the Federal Reserve’s ability to buy municipal debt was very limited. This, in fact, is not true. The Federal Reserve, like Sanders has stated, has bought up trillions of dollars from many locations, especially during financial crises.

Still, the previous option does not look so promising. In Yellen’s opinion, bailing out Puerto Rico would not really benefit the US economy, as a whole. If the Federal Reserve does not trust Puerto Rico, it seems that we should not be expecting any help from Fed for now.