The United States is staring down an economic crisis, but it’s not coming from any of the 50 states. The U.S. controls 12 territories outside it’s borders, one of which is experiencing an extreme economic crisis.
Puerto Rico was once an investor’s tax heaven. Since it’s bonds are triple tax exempt, investors who buy in avoid federal, state, and local taxes. A tempting offer combined with cheap labor has also attracted some of the United States’ largest company headquarters.
However, not even the business of United States investors can stop the inevitable. The country announced an additional new debt of 3.5 billion on March 11th through bond sales, bringing the total debt up to $70 billion.
This may save Puerto Rico today, but it’s only pushing the crisis further down the road.
How does this affect us?
The United States took control of Puerto Rico in 1898. While our ties to the island may not extend as far as statehood, the influx of American investment in Puerto Rico’s bonds is ultimately what’s going to hurt us. If Puerto Rico defaults, U.S. stock markets will suffer a massive hit.
How bad can it be?
According to Standards and Poors, Puerto Rico’s debt boils down to $10,600 per capita. That’s 10 x the U.S. median.
With 51% of the country’s 4 million residents on welfare, citizens are fleeing the island in search of jobs at an alarming rate. This past decade marks the largest migration wave since the 1950s.
The problem may be difficult to resolve, but one thing is clear. It’s time to face the financial reckoning of Puerto Rico, before it becomes the European Union’s Greece for the United States.