Global Financial Crisis: China, Greece and Puerto Rico All On The Brink Of A Meltdown

Puerto Rico’s governor Alejandro García Padilla just announced that the country simply can't pay off the $72 billion it has in debts.

“The debt is not payable. There is no other option. I would love to have an easier option. This is not politics; this is math,” stated Padilla.

The announcement has caused investors to hurriedly sell shares of some of the largest bond insurers.

Shares of bond insurers Assured Guaranty Ltd., MBIA Inc., and Ambac Financial Group , Inc. are all down between 11% and 19% Monday. MBIA and Assured Guaranty insure roughly one-fifth of the islands $73 billion in municipal debt.

These are the same types of insurers that were hit by the housing crisis.

Comments made by Puerto Rico Gov. Alejandro Garcia Padilla, acknowledging that the island nation may not be able to repay all of its outstanding debt in full, spooked investors and pushed down the price on some Puerto Rico bonds sold in 2014 to 69 cents on the dollar from 77 cents last week, according to Electronic Municipal Market Access website.

The island looks set to miss a debt payment due Wednesday, and it also needs to approve a new budget by Tuesday. The government has said it may have to shut down by September if it can’t raise new money.


While Puerto Rico's crisis might not present the same threat to the world economy that a Greece exit from the EU would, the additional stress is far from what is needed to keep the failed system afloat.

The other major threat is China, who's stock market has been in a free fall since July 2015, plunging 20% in just a couple of weeks.

Desperate Chinese officials are scrambling to stop the implosion and restore the bubble, and so the People’s Bank of China (PBOC) made a major move, cutting interest rates sharply, to a record low. This makes more money available to banks, which officials hope will flow into the stock markets and prop up stock prices.

According to a Nomura analyst quoted by ZeroHedge:

“The policy easing should be viewed as a measure to contain the risk of a hard landing or systemic crisis rather than one to achieve faster growth. In this case, the stronger-than-expected monetary easing may help stem the decline in the equity market following a 10.6 percent drop over the past two trading days. The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability.”

In other words, the purpose of the policy measure is to prop up the stock market, but it will have little effect on growth, which is the “normal” purpose of interest rate easing. Whether it will even succeed in propping up the stock market and preventing “an equity market collapse” remains to be seen in the next few days.




  1. Leslie
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