According to Alejandro Garcia Padrilla, its Governor, Puetro Rico is $73 billion in debt and the island is unable to pay. Now being termed “America’s Greece,” the “insolvent” U.S. commonwealth has the potential to cost billions of dollars to a range of U.S. financial institutions, many of whom are highly leveraged in the Puerto Rican bond market. The scale of the island’s debt is such that, on current estimates, it is 15 times greater than the average debt of the 50 states, and it will not be long before Puerto Rico simply runs out of available cash. Greece’s debts in part consist of around $14 billion owed to U.S. institutions. However, the $73 billion that Puerto Rico owes is virtually all owed to the U.S. financial system.
Any chance of an economic boom on the island looks bleak. 40% of islanders live below the poverty line, the unemployment rate is running at over 12%, and Puerto Rico has officially been in recession since 2006. Steven Rhodes, the retired bankruptcy judge who actually advised on the Detroit bankruptcy, has been brought in to offer assistance on the island’s financial plight. His assessment is direct and blunt; the island “can no longer pay its debts, it will soon run out of cash to operate, its residents and businesses will suffer.”
Greece, and their current difficulties within Europe, may feel a long way away to the average American. However, Puerto Rico sits on America’s doorstep, their debt level is very real, and will prove to be extremely costly to the U.S. economy. Many Wall Street firms may not survive the repercussions. If you are concerned this is yet another example of financial mismanagement and the shape of things to come, please Like & Share this post.