Here Comes "Prexit": Puerto Rico In "Death Spiral", Debts Are "Not Payable", Governor Refuses To "Kick The Can"

Tyler Durden's picture

As we noted last night, for a whole lot of time nothing at all can happen under the guise of "containment"... and then everything happens all at once. Because not even two full days after Greece activated the "Grexit" emergency protocol, leading to capital controls, and a frozen banking system and stock market, moments ago the NYT reported that the default wave has jumped the Atlantic and has hit Puerto Rico whose governor Alejandro García Padilla, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.

In other words, first Greece, and now Puerto Rico may be in a state of Schrodingerian default. Why the ambiguity? Because while Greece is not technically in default until July 1, Puerto Rico does not even have an option to declare outright default. But that doesn't mean that the commonwealth will service it.  Quoted by the NYT, García Padilla said "The debt is not payable." He added that "there is no other option. I would love to have an easier option. This is not politics, this is math.

Funny: math went out the window in 2009 when central bank "faith" took over. The problem is that faith has run out, as has the "political capital" to keep an insolvent global system running, and first Greece now Puerto Rico are finally realizing it.

As the NYT adds, this is "a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state."


A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals.


That market has already been shaken by municipal bankruptcies in Detroit; Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt.

The immediate implication, as accurately presented by the NYT, is that Puerto Rico's call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending. Indicatively, Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds.

What is worse for the illusions that is US "capital markets" is that virtually all the same hedge funds who are long Greece on hopes of some central bank bailout, are also long Puerto Rico. As such, while tomorrow most will be spared...

... some of the most "respected" US hedge funds will suffer a gruesome bloodbath.

What happens next is unclear: "Puerto Rico, as a commonwealth, does not have the option of bankruptcy. A default on its debts would most likely leave the island, its creditors and its residents in a legal and financial limbo that, like the debt crisis in Greece, could take years to sort out."

So without the "luxury" of default, what is PR to do? Why petition to be allowed to file Chapter 9 naturally: after all everyone is doing it.

In Washington, the García Padilla administration has been pushing for a bill that would allow the island’s public corporations, like its electrical power authority and water agency, to declare bankruptcy. Of Puerto Rico’s $72 billion in bonds, roughly $25 billion were issued by the public corporations.


Some officials and advisers say Congress needs to go further and permit Puerto Rico’s central government to file for bankruptcy — or risk chaos.


“There are way too many creditors and way too many kinds of debt,” Mr. Rhodes said in an interview. “They need Chapter 9 for the whole commonwealth.”

García Padilla said that his government could not continue to borrow money to address budget deficits while asking its residents, already struggling with high rates of poverty and crime, to shoulder most of the burden through tax increases and pension cuts. Where have we heard that before...

He said creditors must now “share the sacrifices” that he has imposed on the island’s residents.


“If they don’t come to the table, it will be bad for them,” said Mr. García Padilla, who plans to speak about the fiscal crisis in a televised address to Puerto Rico residents on Monday evening. “What will happen is that our economy will get into a worse situation and we’ll have less money to pay them. They will be shooting themselves in the foot.”

And the punchline:

“My administration is doing everything not to default,” Mr. García Padilla said. “But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”

And this one: any deal with hedge funds, who are desperate to inject more capital in PR so they can avoid writing down their bond exposure in case of a default, "would only postpone Puerto Rico’s inevitable reckoning. “It will kick the can,” Mr. García Padilla said. “I am not kicking the can.”

We wonder how long before Tsipras, who earlier was quoting FDR, steals this line too.

And speaking of Prexit, how long before Puerto Rico exits the Dollarzone... and will there be a Preferendum first or will the governor, in his can kick-less stampede, just make a unilateral decision to join Greece, Ukraine, Venezuela and countless other soon to be broke countries in the twilight zone of Keynesian sovereign failures?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ThroxxOfVron's picture

Am I the only one who lies awake at night wondering where the hell such incomprehensible sums have dissappeared to?

SoCalBusted's picture

$72 Billion? meh, just about a month of QE here on the mainland.

scatha's picture

Peoples mind is so enslaved that they even forgot what borrowing is. Yes, a word borrowing has acquired twisted meaning Orwellian style. In truth it became meaningless.

Here is what word borrowing really means.

When you get a pint o salt from your neighbor it is borrowing since you neighbor has salt to lend but if you get money from a bank it is not borrowing since bank has no money to lend. They make money up as an illusion just for you from thin air based on collateral of your future hard work or whatever you already own. All just to enslave us.

Why don’t you come to bank make up you own money and enslave banksters. Would they laugh you out of the doors?  So why don’t we laugh them off to hell?

Money is just illusion for gullible. Powerful disregard money as a value and treat it as a manipulation tool.

Know your enemy, know what their money is truly for:

VW Nerd's picture

China is probably reading this and thinking PR would be a nice compliment to the Spratleys.

homebody's picture

72 billion is nothing, Greek debt is nothing.  All the stupid sheeple in this country will pick up the tab so the game will go on forever.  Dumb fucks can't see the death spiral before their eyes.

Ms No's picture

I love Puerto Rico and have friends there but that place was creepy way before any threat of bond collapse.  Peter Schiff said he was going to move some offices there if I remember right, he said they had a future because of their tax haven status and new tax friendly laws.  I wonder how that is working out for him.  You couldn't find toilet paper in a bathroom in half the island before 2008, bars on the windows everywhere except some neighborhoods in the NW.

If your white and your in the PR time to go.  That place has always reeked of a revolution brewing.


cherry picker's picture

Greece and Puerto Rico bring to mind student and sub prime 84 month car loans.

Nations and individuals are not much different.  Greece and Puert Rico as well as the student loan and subrime applicants should never have recieved loans to begin with because they cannot pay back and most of the coin is squandered on non necessary goods and services.

This is going to get a whole lot worse.

MrSteve's picture

In the 1930s, all the countries in eastern Europe defaulted on their sovereign bonds. Also, many counties in the US went broke and got combined with their neighboring county. PR will get some kind of write down and stretch out, it is the way politics works.

Archive_file's picture

Puerto Rico, Chicago, Detroit, Italy, Spain, etc. when will the fucking wheels finally come off this goddamn trash truck?

JoWazzoo's picture

Well, I would donate 20 $ to those hot babes above to help the cause.  Heh

FrankDieter's picture

Yeah, $30 for a nice  2 minute BJ

Shrike99's picture

This is why Greece can't be allowed to succeed in escaping from under the thumb of the bankers. If they do, others might get the idea, and the next thing you know - worldwide sovereign debt Jubilee.

WillyWonka's picture

For me, the timing is the most questionable.   While the whole world watches the greek cornholio show, PR announces this.   Always watch the other hand...lets see if this has been planted in the always reliable leak source NYT.  Who is advising the PR govener? Any bet it rhymes somewhat with Oldman Sucks?

Paracelsus's picture

They (Big Pharma) tested " the Pill" on the women of PR.Always wondered if any died

of complications,but I am sure they got them to sign some legal waiver.

Wasn't Loreena Bobbitt of ad hoc surgery fame from PR? Ouch,poor Hubbie but I guess

they stitched it back on okay..... Whew....

Debugas's picture

any SEXIT on the horizon please ?

dreadnaught's picture

are the above Bio Fems or...?

Atomizer's picture

The person who signed the debt contract is responsible to repay the agreed fiduciary obligations. 

He/she acted on their own. The low sperm political gene pool who voted against the people's wishes will pay the outstanding debt obligations. 

Don't fear these cunts!

basho's picture

"may be in a state of Schrodingerian default"

what is a "Schrodingerian default"?

what we are seeing here is a Quantum Physics event rather than Newtonian event?

"This is not politics, this is math."

so is it math or physics? is it a riddle?


`Come, we shall have some fun now!' thought Alice. `I'm glad they've begun asking riddles.--I believe I can guess that,' she added aloud.

`Do you mean that you think you can find out the answer to it?' said the March Hare.

`Exactly so,' said Alice.

`Then you should say what you mean,' the March Hare went on.

`I do,' Alice hastily replied; `at least--at least I mean what I say--that's the same thing, you know.'

`Not the same thing a bit!' said the Hatter. `You might just as well say that "I see what I eat" is the same thing as "I eat what I see"!'

`You might just as well say,' added the March Hare, `that "I like what I get" is the same thing as "I get what I like"!'

`You might just as well say,' added the Dormouse, who seemed to be talking in his sleep, `that "I breathe when I sleep" is the same thing as "I sleep when I breathe"!'

`It IS the same thing with you,' said the Hatter,



PirateOfBaltimore's picture

Pr is both in default and not in default in two separate realities. We're waiting for quantum superposition to end and reality to collapse to one outcome or the other.


Got it?

Xiuhcoatl's picture

As the economic situation in Puerto Rico progressively deteriorates I expect the political and ideological ties between Cuba and La Isla del Encanto to become more open and more popular in the Puerto Rican context.

Socialism and Puerto Rican nationalism has not fared well in the Puerto Rican electoral context over the last 50 or 60 years. Indeed, both of these separate ideas have been supressed at times. That may be going to change.

For some boricuas that's a reason to flee; for others it's a chance to get in on the ground level of something new.

In any event I wish them well.

Bogdog's picture

Holy Fook! Right out of left field, this one.

The Lesser Tropical Black Swan has shat in our jerk-chicken salad.


rsnoble's picture

Since the Puerto Rico is a US territory won't the FED come in to rescue them, tooo?  Or have they been already and it still came to this lol.

Hope Copy's picture

Like the FED helped Detroit..

ramgold2206's picture

Seriously guys,,, get into bullion as soon as you can..while its still affordable ..

The whole system is crashing down around us.. its mathematical... fiat currencies are tanking all over the place.


Own bullion.. protect yourself.. contact me for details on how to get physical bullion into your hand for close to spot price.. best product on the market.. delivery in 2 weeks

Thisson's picture

Looks like a pyramid scheme.  

Hope Copy's picture

So, what's it going to cost Monsanto?

roddy6667's picture

Looks like opportunities are coming up in PR. Fire sale on all assetts. Giveaways in real estate.

Expect to see Chinese officials flying in to make win/win deals, just like they did in Africa and some failed states in South America.

withglee's picture

which undercut assumptions that local governments in the United States would always pay back their debt.

No government pays back its debt. They all just roll it over ... and that's default.

Duude's picture

I'd consider doing a deal with Puerto Rico so long as they accept using Puerto Rico as the site of a toxic dump for all of the US toxic waste starting with spent nuclear fuel rods.

TeethVillage88s's picture

Well this is just more of the same corruption.

When Congress breaks rules, gets in trouble, they pass more laws on Federal Employees or others... in a show of contrition or a show of reforms.

In this case, Federal Money, Bank Money, TBTF money, International Assistance Money maybe, IMF money maybe, WB Money maybe... whatever. US State Department probably gave them money or hooked them up with bankers and credit... like an in-house version of John Perkins type economic studies which were accompanied by funds for which locals sign for new loans.

So, yeah it is a game.

The game is played by Bankers who draw in Engineering companies and other investors or service providers.

Just print more money, or sell debt to the Central Bank, FED, draw in more depositors and draw in more assets... and on it goes.

Sign on for more debts, we expand.