Puerto Rico's Default: First Domino in the American Fall?

08/05/20156 Comments

uscrashby James Corbett
August 4, 2015

Sometimes we have to step back from the day-to-day news cycle to realize just how crazy things have become.

Remember the Madoff scandal? The decades-long Ponzi scheme that ultimately bilked investors out of a staggering $65 billion? If that scam had been exposed at any other time in human history, even just a few years before, it would have been the story of the decade. But coming as it did in the wake of the Lehman collapse and the multi-trillion-dollar banker bailout swindle, it came and went like just another news story.

Or the LIBOR rate rigging scandal? The acknowledged manipulation of the London Interbank Offered Rate that underpins a mind-boggling $800 trillion of securities and loans globally? Again, in any other era this story would have been the undisputed financial scandal of the century. But here in 2015 the story gets boiled down to the conviction of a 35-year-old trader (or, as the MSM prefers to call him, "ringmaster") and the world gives a collective yawn and goes back to important news; you know, lion hunting and banning flags and the like.

Well, time to put another crazy story on that list. On Monday Puerto Rico missed a $58 million municipal bond payment, thereby setting off the biggest municipal default in US history. The Commonwealth is already being compared to Greece, and this is universally acknowledged to be the thin edge of the wedge of an unpayable public debt "death spiral" . . . but if you dozed through the evening news' finance updates you might have missed it.

puertoricodebtThe default concerns the Puerto Rico Public Finance Corporation, a subsidiary of the Puerto Rico Government Development Bank that issues municipal bonds to fund the government's executive branch. Although this $58 million missed payment is small potatoes when it comes to the island's ongoing $72 outstanding debt crisis, it is being portrayed as a "strategic default" designed to give the Puerto Rican government more leeway to negotiate a debt restructuring program with its creditors and prioritize resources for more pressing debt payments. The government, naturally, is portraying itself as the victim of predatory lenders who won't give the beleaguered commonwealth a break. In reality, the problem is largely one of the government's own making: Its negotiating strategy—demanding debt haircuts while refusing to do anything to address the underlying problems—is only exacerbating the situation.

But with all due respect to the Puerto Rican people and the very serious challenges facing them in this debt crisis, this story may be just the first domino to fall in what could very well be a disastrous second half of the year for the American economy (and, by extension, the global economy). What follows in the coming months will be a procession of events that could threaten to bring the US' own financial woes into sharp focus and bring the economy to a standstill with it.

First up on the block: the September meeting of the Federal Open Market Committee. All eyes will be on the September 17th press conference at the end of the meeting, where it is very likely that the Fed will go ahead with its planned rate hike, defying economic reality and almost certainly plunging the economy into recession (if not much worse), exactly as happened in 1937. And let's not forget that the FRBNY has already taken the incredible precaution of setting up an emergency adjunct office in Chicago to keep things going in the event of "disruption" during the coming rate-hike period.

Next up: another US government budget/shutdown melodrama. That's right, the federal government is once again facing a shutdown if Congress critters don't hammer out a funding bill by September 30th. And then, even if a stopgap funding bill is passed, Congress will need to pass another debt limit hike by the end of the year in order to continue running the country on funny money, hope and change-ium. Although these negotiations are never more than an excuse for partisan grandstanding and although neither side of the statist government mafia would think of actually pulling the plug on the game itself, these episodes have very real potential consequences for the country's credit rating, and consequently on global credit markets.

world-on-fireGiven that we are already going through an extremely sensitive moment in the global economic "recovery" (insert laughter here), with plunging oil prices, an out-of-control Chinese stock market, and the smoldering wreckage of the Greek crisis weighing down the Eurozone, a one-two punch of a Fed rate hike and US credit rating downgrade could very well be the spark to set off the global economic powder keg. And all of this right before the IMF/World Bank annual meeting in October (with the potential to crown the Chinese yuan as a world reserve currency) and the upcoming G20 leaders' summit in Turkey in November (with the potential to kick the New World Order football further down the field, just like in 2009).

Could this be the beginning of a global economic derailment? Certainly there is no shortage of articles in the alternative economic media predicting disaster in September of this year (right in time for the end of the current Shemitah cycle, no less). All that we know for sure at this point is that the future of the global economy now rests in the hands of the same central bankers and puppet politicians who have been looting the economy like madmen for the last decade and are now making very visible signs of preparation for a collapse.

Given all of this, let's hope that this Puerto Rican default will be the worst tragedy to befall the American economy this year . . . but let's prepare for something much worse.

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Comments (6)

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  1. matagordagreg says:

    Got my double layered tin foil hat , my high water britches , and my shit stomping goat roping cowboy boots on and I`m ready for when TSHTF and then some.
    Good luck to all.
    from the sunny climes of the Matagorda Bay.

    • dubrey says:

      That’s funny Greg. Looks like a nice area to be in. I’m looking for information and comment from anybody who is in one of the places that are experiencing major financial problems right now. My question would be, So, you’ve spent the last few years stocking up on gold and silver. Were you able to cash any in and savor some of the benefits “they” said you would when the SHTF? One would think all the gold and silver purveyors would be chomping at the bit to relay the good news of the relief Preppers in financially failing countries are having because of planning ahead…..James?
      Thanks for the great comment, Bob

  2. skyehigh9 says:

    Welcome back James. I would love to get an update from David L. Smith on his observations and opinions.

  3. william_york says:

    I am curious to hear what James and others think of Jim Willie’s forecasts and analysis. He is adamant that the Fed can’t raise rates (unless they want to purposefully wreck the economy). He’s an entertaining listen and clearly a smart guy, but some of the financial machinations he describes (e.g., interest-rate swap derivatives) are over my head.

  4. Terraset says:

    Rant then good stuff.

    I won’t deny that I get depressed when I hear about this particular topic. Because of my disability I’m currently forced to live with a number of people who aren’t exactly interested in the goings on of the world and how it affects them. Then on top of that my disability greatly limits what work I can do, not that there’s really any work around here to begin with.

    I’ve tried over and over again to provide these retards with evidence, suggest things to them that we could all be doing right now to prep for this inevitable crash. I’ve been doing this for years. It hasn’t just been me either it’s been their own friends and family on the odd occasion as well. One in particular who works in an industry where they have pretty intimate knowledge of how the governments and corporations think and what they say. These people literally do not want to look at evidence.

    I have had it IN MY HAND so that they wouldn’t have to get off their lazy asses to read it elsewhere. They WILL NOT look at it. Or if they do they just shrug it off or outright say that “anyone could’ve done that” as they did to an ABC news report I showed them on police brutality during Occupy Wallstreet. I don’t remember the exact segment, it was called “rewind” or something. But basically because they don’t watch ABC news and didn’t know the newscaster their response to me was that it looked “hokey” and that it could’ve made by anyone. I speak so lowly of them because yes, I did try being nice and diplomatic and non threatening when I talked to them for a long time. It didn’t make a difference.

    Normally I wouldn’t care, but these people are going to drag me down with them. Normally I’d just abandon people this stupid and then laugh as they burn alive in their own moronicness because it’s not like they can argue they didn’t see it coming, but that’s not an option.

    As much progress as I’ve been making in my own endeavors (which are probably better discussed on Skeptiko rather than here) to replace my deteriorating vision with an energy sense… I don’t really think it will be ready by October. And even if it was it’s probably not going to make enough of a difference on it’s own. It won’t stop me from trying but its the reality I still live in.

    That being said if I have the opportunity to develop and teach this skill to others it will make it all worth it. In this world you either do or get done. I don’t need to tell this audience that no amount of self-proclaimed “Human Rights” “Laws” or “Morals” will ever change that. If you don’t try you can’t succeed and the easiest path to failure is telling yourself “it can’t be done.”

    If anything, use the bad in your life to fuel your efforts to enact change. There’s no such thing as a bad emotion, only an emotion that isn’t being used to full efficiency. The best success is never giving up. If you have a problem that you’re stuck on just come at it from new angles till you get it. Reality should bend to you, not the other way around.

    Although all of this is pretty standard knowledge I like reiterating it. Everyone has something they’re good at and are passionate about. For me it’s martial arts an development of Chi into something more practical for everyday use. For James it’s spreading information in an open source manner. For other people it may be gardening or cooking or construction or programming. You name it, someone likes it. Take whatever it is that you love and capitalize on it. No one can do everything alone but if there is no common goal then we’ll all just be crabs in the bucket waiting to boil alive.

    • Terraset says:

      The other good part of this, although perhaps not so relatable, is that I hit two milestones in my training yesterday. One solved a problem I’ve been having since 2011 and is pretty major so I’m rather ecstatic about that.

      No matter what your endeavor or how “crazy” it may be to others, your persistence will always mean more than their naysaying. People who limit themselves don’t get to complain that they live limited lives. They don’t get to wish they had more than they do. Or wish they could do something they can’t. They don’t get to be sad or angry about it later. They forfeit all that the moment they tell themselves something is impossible.

      One crazy person with the desire to make their crazy idea real without pre-existing proof is worth a lot more more than a billion “rational” people who won’t lift a finger till someone else proves that their crazy idea “exists.” I don’t even need to point out how many times in history that cycle has repeated. First they will laugh, then they will follow, as lemmings are want to do. So let’s all become crazy people and liven up this mediocre world.

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