{"id":16829,"date":"2015-06-29T02:29:03","date_gmt":"2015-06-29T02:29:03","guid":{"rendered":"https:\/\/stateofthenation2012.com\/?p=16829"},"modified":"2015-06-29T02:29:15","modified_gmt":"2015-06-29T02:29:15","slug":"puerto-rico-governor-declares-72-billion-debt-not-payable","status":"publish","type":"post","link":"https:\/\/stateofthenation2012.com\/?p=16829","title":{"rendered":"Puerto Rico Governor Declares $72 Billion Debt ‘Not Payable’"},"content":{"rendered":"

\"29DB-RICO-master675\"<\/a><\/p>\n

Here Comes “Prexit”: Puerto Rico In “Death Spiral”, Debts Are “Not Payable”, Governor Refuses To “Kick The Can”<\/h1>\n

ZeroHedge.com<\/p>\n

As we noted last night<\/span><\/a>, 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 <\/span><\/a>that the default wave has jumped the Atlantic and has hit Puerto Rico whose governor Alejandro Garc\u00eda Padilla, saying he needs to pull the island out of a \u201cdeath spiral,\u201d has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions<\/b>.<\/span><\/p>\n

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.\u00a0 Quoted by the NYT, <\/span><\/a>Garc\u00eda Padilla said “The debt is not payable<\/b>.” He added that “there is no other option. I would love to have an easier option. This is not politics, this is math.<\/b>\u201d<\/span><\/p>\n

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.<\/span><\/p>\n

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.”<\/span><\/p>\n

More:<\/span><\/p>\n

\n

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.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

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.<\/span><\/p>\n<\/blockquote>\n

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\u2019s bonds have a face value roughly eight times that of Detroit\u2019s bonds.<\/span><\/p>\n

What is worse for the illusions that is US “capital markets” is that virtually all the same hedge funds who are long Greece <\/span><\/a>on hopes of some central bank bailout, are also long Puerto Rico. As such, while tomorrow most will be spared…<\/span><\/p>\n

… some of the most “respected” US hedge funds will suffer a gruesome bloodbath.<\/span><\/p>\n

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.”<\/span><\/p>\n

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.<\/span><\/p>\n

\n

In Washington, the Garc\u00eda Padilla administration has been pushing for a bill that would allow the island\u2019s public corporations, like its electrical power authority and water agency, to declare bankruptcy. Of Puerto Rico\u2019s $72 billion in bonds, roughly $25 billion were issued by the public corporations.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Some officials and advisers say Congress needs to go further and permit Puerto Rico\u2019s central government to file for bankruptcy \u2014 or risk chaos.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u201cThere are way too many creditors and way too many kinds of debt,\u201d Mr. Rhodes said in an interview. \u201cThey need Chapter 9 for the whole commonwealth.\u201d<\/span><\/p>\n<\/blockquote>\n

Garc\u00eda 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<\/b>. Where have we heard that before…<\/span><\/p>\n

\n

He said creditors must now \u201cshare the sacrifices\u201d that he has imposed on the island\u2019s residents.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u201cIf they don\u2019t come to the table, it will be bad for them,\u201d said Mr. Garc\u00eda Padilla, who plans to speak about the fiscal crisis in a televised address to Puerto Rico residents on Monday evening. \u201cWhat will happen is that our economy will get into a worse situation and we\u2019ll have less money to pay them. They will be shooting themselves in the foot.\u201d<\/span><\/p>\n<\/blockquote>\n

And the punchline:<\/span><\/p>\n

\n

\u201cMy administration is doing everything not to default,\u201d Mr. Garc\u00eda Padilla said. \u201cBut we have to make the economy grow,\u201d he added. \u201cIf not, we will be in a death spiral.\u201d<\/b><\/span><\/p>\n<\/blockquote>\n

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\u2019s inevitable reckoning. \u201cIt will kick the can,\u201d Mr. Garc\u00eda Padilla said. \u201cI am not kicking the can.\u201d<\/b><\/span><\/p>\n

We wonder how long before Tsipras, who earlier was quoting FDR, steals this line too.<\/span><\/p>\n

And speaking of Prexit, how long before Puerto Rico exits the Dollarzone… and will there be a Pr<\/b>eferendum 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?<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Here Comes “Prexit”: Puerto Rico In “Death Spiral”, Debts Are “Not Payable”, Governor Refuses To “Kick The Can” ZeroHedge.com As we noted last night, for a whole lot of time nothing at all can happen under the guise of “containment”… … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-16829","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts\/16829","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16829"}],"version-history":[{"count":0,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=\/wp\/v2\/posts\/16829\/revisions"}],"wp:attachment":[{"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16829"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16829"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateofthenation2012.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16829"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}