Puerto Rico Bonds Collapse to 36 Cents on Dollar following Trump Comments

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Puerto Rico general obligation bonds fell to 36 cents on the dollar after Trump told Fox News on Tuesday night that Puerto Rico’s debt will have to be wiped out.

by Mish

Looking back, bonds prices started the collapse in 2014, well before Trump comments and well before hurricanes.

Puerto Rico borrowed billions of dollars, more than any state in the US except California and New York for energy infrastructure, but the money did not shore up its aging infrastructure.

Where did the money go?

Puerto Rico Infrastructure

Wipe Out the Debt

On Tuesday night, he told Fox News that Puerto Rico’s debt will have to be wiped out. “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that, I don’t know if it’s Goldman Sachs, but whoever it is you can wave goodbye to that,” Trump said.
“This is not something a president should be doing or can do,” said Larry McDonald, head of the U.S. macro strategies at ACG Analytics. “It’s just noise, and it’s pretty far removed from reality.”
“This is not a dictatorship. We have bankruptcy judges and the rule of law,” McDonald said. “But it is scaring the bond market.”
Puerto Rico currently holds more than $70 billion in debt in part because of years of government overspending. Cate Long, founder of Puerto Rico Clearinghouse, told CNBC in an email that in aggregate, about 75 percent of it is held by retail investors

After years of overspending and racking up massive amounts of debt, the average age of Puerto Rico’s petroleum-powered energy plants is 44 years vs an 18 year-average in the US.

44% of Puerto Rico’s electricity is from petroleum vs 0.6% in the US.

On top of $70 billion in debt, Puerto Rico has $123 billion in unfunded liabilities.

Where the hell did the money go?

Mike “Mish” Shedlock

Interest payments, most likely, compounded by falling taxes and ruthless short selling of their bonds. 2014 thru 2016 saw one of the fastest rises in the USD's history, followed by severe deflation in many parts of the world, especially those with lots of debt denominated in USD, which in Puerto Rico's case, manifested as heightened unemployment and thus less money on the tax rolls. What happens when you get ballooning interest rates, endless short selling, and reduced income?

If you have to ask where the money is gone, I have to question your honesty here. The last question seems a little disingenuous, especially considering how much experience you have in the financial sector. Surely someone like you would be able to answer that question adequately. Puerto Rico is a territory with little in the way of sovereignty that was mercilessly exploited by the US proper in decades past. They have very little financial system so to speak of and no access to the "easy money" credit markets that every US state has access to. They pay taxes yet get no representation. If you think this is all a mystery, you haven't thought hard enough about it.

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