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Global Debt Time Bomb Ticks – Puerto Rico Is Next
Global Debt Time Bomb Ticks – Puerto Rico Is Next
- Puerto Rico Governor says island cannot pay its $72 billion debt
- Puerto Rico debt 15 times per capita median debt of the 50 U.S. states
- Complicated arrangements misled bond investors to believe their funds were secure
- Share price of bond insurer exposed to Puerto Rican debt plummeting, possibly on inside information
Puerto Rican Governor Alejandro García Padilla addressed the island’s people about $73 billion debt
With all eyes on Greece it would seem another crisis relating to unpayable debt is brewing in the Caribbean. The governor of Puerto Rico, Alejandro García Padilla, has warned that the island is unable to pay its debts of $72 billion.
Puerto Rico has managed to rack up an astounding level of debt relative to the size of its economy. Moody’s estimates the small U.S. territory to have bond debts fifteen times greater than the median bond debt of the 50 U.S. states.
Padilla has warned that by 2025 the island could have bond debt of up to $40,000 for every man, woman and child – in a territory with high unemployment and where the average annual wage is less than $20,000.
The debt was amassed by offering too-good-to-be-true terms to U.S. investors wishing to avoid paying high taxes at home. Interest paid on Puerto Rico’s bonds are tax exempt in the U.S.
A complicated set of arrangements lulled investors into a false sense of security with regards to Puerto Rican bonds. For a start, the constitution “contains an unusual clause that requires general-obligation bonds to be paid ahead of virtually any other government expense,” according to the New York Times.The government then promised specific revenue streams to different groups of bondholders.
The 2008 crisis hurt the economy badly and the government continued to promise more and more revenue streams in order to issue more and more bonds, the funds from which were used to finance current expenditure. Now there is simply not enough cash to finance debt and public services.
The governor did not specifically say that debts would be restructured. He did, however, say that he was “guaranteeing our citizens essential services and our pensioners a just income.”
Now, bondholders are at risk as are the funds which hold Puerto Rican bonds and, more importantly, those who insure them in the derivatives market.
Dave Kranzler, from Investment Research Dynamics has warned that there are signs that the Puerto Rico situation may not remain a local crisis for much longer.
He points out that share prices of MBIA, the bond insurers have been plummeting. MBIA are valued at $3.9 billion whereas their exposure to Puerto Rican debt is around $4.5 billion. Kranzler reckons their exposure could even be multiples of that figure. A default could wipe them out.
He also points out that the firm’s largest shareholders are Warburg Pincus, the firm to which Timothy Geithner went after his stint as Treasury Secretary, when he helped paper over the chasms opening up in the financial system.
Geithner is, therefore, better placed than most to estimate the risks posed by various bond issuers. If it is Warburg Pincus who are shedding their MBIA stock it is likely that more trouble is brewing in Puerto Rico.
Essential Guides:
Protecting Your Savings In The Coming Bail-In Era
From Bail-Outs To Bail-Ins: Risks and Ramifications
MARKET UPDATE
Today’s AM LBMA Gold Price was USD 1,171.70, EUR 1,053.26 and GBP 748.38 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,175.00, EUR 1,053.01 and GBP 747.08 per ounce.
Gold slipped $6.70 or 0.57 percent yesterday to $1,172.50 an ounce. Silver remained unchanged at $15.72 an ounce.
Silver in U.S. Dollars – 5 Year
Gold in Singapore for immediate delivery inched up 0.2 percent to $1,174.25 an ounce near the end of the day.
In spite of the Greek drama, the yellow metal has failed to see an influx of safe haven bids, as investors are still focussed on a potential U.S. interest rate hike. Greece has now become the first developed economy to miss a payment to the International Money Fund.
The market was affected by comments from a top central central bank member who said that The Federal Reserve is on track to raise interest rates this year, with September still “in play”, despite growing market volatility and anxiety in the wake of Greece’s debt default.
James Bullard, St. Louis Fed President, shrugged off the impact of Greece’s economic problems and said the Fed will remain data dependent on its view about when to raise rates. However, Mr. Bullard, does not currently hold a voting role on the monetary-policy setting Federal Open Market Committee and therefore his bark is worse than his bite.
In late morning European trading gold is up 0.04 percent at $1,172.70 an ounce. Silver is off 0.45 percent at $15.63 an ounce and platinum is up 0.56 percent at $1,081.00 an ounce. Palladium rose over 3 percent to a session high of $700 an ounce.
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Great timing again, keep the fires stating Obama. Folks this is classic behvior of a dictator.
"Fed will remain data dependent"....my chickens are busy producing more data as we speak.
Some poor accountant type is busy in the back room making up "facts and data". Hats off to Winston Smith!
Why don't we just rewrite the debt and call it success? Kick the can way down the road, right? I don't think default is allowed anymore in our free market system of bankster rule.
you mean, the bankers lied?!?!? nooooo
President Obama has said that he has a lot to do on his agenda before his term expires. I wonder if he intends to take action to "decolonize" Puerto Rico. It would be in line with his politics - the individuals most active in the Puerto Rican independence movement are left of center; some very much so.
I'm not sure how Obama could do that, though - he would have to convince the Puerto Rican's that it was in their best interests. What can he do - make them an offer they can't refuse?
I'm of a capitalist bent, but I do favor PR's independence if they think they can make things work.
On the other hand, a friend of mine asks why should the US give Russia another submarine base?
You don't suppose THIS has anything to do with it, do you?
http://www.cato.org/blog/social-security-disability-fraud-puerto-rico
.
Fraud. Everywhere you look.
But nothing changes.
I remember that PR had a referendum vote 2 years ago or so. So when is the next vote coming up for them becoming a USA state (on yes or no ballot)?
I bet that will play into bailouts for them.
Well, war with Iran will be the next President's top priority... there's gold there now...
http://freebeacon.com/national-security/iran-repatriates-13-tons-of-gold...
Would not dare, Iran is too well prepared. Nothing like the push-over on weaker states, e.g. from Panama to Libya.
Even Syria has proved a very hard nut to crack and the PNAC obective of destroying seven countries in five years is WAY behind schedule, even with the help of the ISIS mercenary army,
And now Russia is much stronger than when Yugoslavia got brokn up.
Ricardo's comparative advantage for alot of these entities is "more government positions, more government laws". Which has a greater impact on commerce and wealth than any amount of sweet beaches and tiny bikini's.
You just have to let these government entities "rot out".
LAUGH OUT FREAKIN LOUD...
"Padilla has warned that by 2025 the island could have bond debt of up to $40,000 for every man, woman and child"
THE US FEDERAL DEBT IS $154,334 for every taxpayer...TODAY!!! By 2025, it will be $350,000 per/tax payer!!
....we are so screwed. :)
www.usdebtclock.org
Yes, but we're the most productive, forward thinking, turbocharged country ever! We can pay off anything, even if it takes forever, because we are so, so cool. Puerto Rico just doesn't have the steroids in their bankers like the US does, or the will to break the law with amazing creativity like our congress and associated corporate cronies. Our debt is MADE IN USA, baby!
We Baccardi'd those folks!
Left them to rot and moved the party to Cuba!
Cuba, being virtually isolated for the last 50 years, is like a nice ripe virgin for the bankster predators.
I wonder how loaded up with debt they are? Time to replace those 57 Chevys with new F150s and Escalades. I guarantee there is a group salivating to get inside the new action.
I kinda hope, at this point, Brother Castro tells them to fuck off.
Being born in 62, I've been conditioned to only think of Cuba as a bad guy.
All of a sudden, I feel for them. Like a sheep, being led to slaughter.
Weird.
"Being born in 62, I've been conditioned to only think of Cuba as a bad guy." The Cuban people were never the bad guys; like the USSA, it's been the oppressive government that has been the bad guy.
And the group I see salivating the most over the restoration of relations is the antique car community. It won't get the publicity that other groups get, but I know more than a few who want to go shop for new car projects there.
u know too much...
Prepsite.org: A storm is coming http://www.prepsite.org/2015/07/a-storm-is-coming.html?spref=tw
PR is the real thing..
Meh.
Everything is resetting to the Greenback which for the foreseeable future is really bad news because of the massive energy boom going on inside the USA going on a decade now.
In short "there are no dollars to be had."
Could get a "reset to gold"...talk about a devaluation though!
This crisis will probably start spreading throughout all of the Caribbean...but we shall see.
Panama looks good because it is a BANKING haven rather than a "tax haven"...
Boricua!@!!!!
All those recent multi billionaires who are becoming new citizens should have no trouble bailing out the country, No?
No. They are there for the incredible tax breaks:
https://secure.marketwatch.com/story/puerto-rico-woos-rich-with-hefty-ta...
But I think they plan on keeping it all.
Financialisation, it's what's for dinner...
Why don't they just declare "none of the above."
Become a "New Iceland"?
If you can imagine it, it can be done.
They have been voting for decades on whether to become a state, become independent or stay in the void. Now they can't do anything but collapse......
Come on man you know better than that. Uncle Sugar will not let PR go down in flames anymore than the EU will back away from Greece. The repetitive shit show will keep going on and on till it ends... suddenly. Ain't time just yet. When it does go down we won't have a clue. There will not be tons of repetitive articles and endless talking heads droning(no pun intended) on and on. It will just be boom! Game over.
Obutthead made a tactical mistake when he said PR was on their own. Some part of the government will do something, but they have to do it without making President Zippy look like an idiot, which will be tough since he IS an idiot......
The chart has a January time on the horizontal axis. Is this supposed to be June or what?
The information was meant to be meaningful but nobody said it was timely.
Timmeh
Didn't Obama's mammy Stanley work for the Ford Foundation once? When it was headed by Peter Geithner? The incest flows like champagne from the elite.
FORWARD SOVIET!
So they give investors a nice big haircut plus tons of freshly printed Fed faux bux. Immediately after that people will line up around the block for the new and improved PR bonds. Another day and the same ol' same ol'.
Only price controls on the revenue streams can give the investor the buzz.
I just don't care, my San Juan vacation is booked for Aug 7 to 15, hold on Puerto Rico!