Puerto Rico is just the tip of the iceberg of the coming debt crisis in the western hemisphere as Greece is just the tip of the iceberg of the coming debt crisis in Europe and that is why Puerto Rico is called “America’s Greece”.
In Puerto Rico today,
- more than 40% of the population is living in poverty,
- the unemployment rate is over 12%, and
- the economy of the small island nation has continually been in recession since 2006…
- Just about the entire 73 billion dollar debt is owed to U.S. financial institutions. According to USA Today, there are 180 mutual funds that have “at least 5% of their portfolios in Puerto Rico bonds” because income from said bonds is exempt from state and federal taxation, making them very attractive to many U.S. investors.
- Many of these financial institutions are very highly leveraged, however, so just a “couple of percentage points” could mean the different between life and death for some of these firms.
- Unlike what is happening with Greece, the private financial institutions that hold Puerto Rican bonds are not likely to be very eager to “negotiate”.
- Puerto Rico simply does not have the money to meet all of their debt obligations so somebody is not going to get paid at some point.
- When that happens, those that insure Puerto Rican bonds – bondholders who are in the funds which hold Puerto Rican bonds and, more importantly, those who insure them in the derivatives market – are also going to take tremendous losses.
- When Puerto Rico defaults, bond insurers are going to be expected to step up and make huge debt service payments to investors but this just might bankrupt some of these big bond insurers.
Puerto Rico is just the tip of the iceberg of the coming debt crisis in the western hemisphere as Greece is just the tip of the iceberg of the coming debt crisis in Europe.
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