For House Speaker Paul Ryan and Republican congressional leaders, it isn't a question of whether or not to pull the plug on Puerto Rico, it's whether or not to stop up the drain down which it is spiraling:
Puerto Rico said its Government Development Bank, which is operating in a state of emergency to preserve its dwindling cash, reached an agreement with some credit unions to delay $33 million of bond payments as the commonwealth rushes toward a potential historic default.
The pact only affects a portion of the $422 million that the bank owes on May 1st.
The GDB will exchange the $33 million in bonds for new debt that will mature May 1st, 2017, Governor Alejandro Garcia Padilla’s administration said in a statement Friday. The terms of the agreement are available to other credit unions, called cooperativas, and investors, according to the statement.
A whopping 7.8%. Yeah, that'll be an adequate downpayment downpayment.
The bank is still negotiating a possible debt exchange on all of its bonds, which would require the participation of all its creditors, according to the statement. The GDB, which structured the island’s debt sales, has $5.1 billion of debt. The governor’s office said Garcia Padilla will speak to the commonwealth in a televised address Sunday at 5 p.m. New York time. [emphasis added]
That should be as informative as mud.
“Apart from this private exchange, GDB continues to negotiate a potential [i.e. fictitious] transaction related to an exchange of all of GDB’s bond indebtedness, which would require the participation of all creditors of GDB (including the cooperativas),” the administration said in the statement. “The private exchange does not affect, or take the place of, those ongoing negotiations.” [emphasis added]
In other words, this little $33 million short-term rollover mini-arrangement isn't a side deal in double-cross of all the other creditors, even though that's pretty much what it is. Boy, wouldn't you like to have Governor Padilla's job right about now?
The credit raters, as is their want and job, are less than impressed:
No matter which route Puerto Rico takes, credit-rating companies see a default as inevitable. Moody’s Investors Service analysts said last week that any non-payment, even if it’s agreed to by creditors, constitutes a default in their eyes. S&P Global Ratings said a distressed-debt exchange or temporarily withholding interest is synonymous to default. [emphases added]
No amount of lipstick, in short, will conceal the porcine nature of she to whom it is being applied. You cannot spin your way out of reality. A default is a default is a default. And today - May Day, appropriately enough - Puerto Rico has defaulted on its $72 billion debt, and its complete fiscal/economic collapse is not far behind.
And how did Puerto Rico get into this jam? You know how:
Puerto Rico and its agencies owe $70 billion after years of borrowing to fill budget shortfalls as the island’s economy contracted. [emphasis added]
The one and only difference between Puerto Rico's government and that of the United States is that the latter printed five trillion currency-undermining dollars of wastepaper and monetized the latter's onrushing borrowing binge. Which means that when - not if - the United States defaults on its twenty-six-hundred-fold debt, the resulting hypercanal cataclysm will make the island common"wealth''s fall sound like a hiccup.
Which makes congressional deliberations over whether to "bail out" or "extend bankruptcy protections to" Puerto Rico seems so inconsequential. Lend them another credit line, give 'em some more time, who cares? That's one card when the entire deck/house is teetering before the fiscal/economic four winds. Bottom line is, the Isle of Enchantment is going down, whether by itself or with the entire "fleet". Only question for the latter is when.
For the former, it's....today.