Zero Hedge has coined a new phrase ‘PREXIT‘ relating to the often used GREXIT referring to the potential exit of Greece from the Euro.
Saving U.S. markets from further harm by the grossly incompetent Puerto Rico government may inspire republicans and democrats to provide for liberty of Puerto Rico by kicking it right out of the American system. Don’t think it won’t happen.
The problem is that such a disorganized exit from the U.S. system would mean an even worse situation for the islands 3.5 million residents. It is a simple solution for the U.S. government; it will no loner have to deal with the islands politicians and it will allow the U.S. government to eventually save +22 billion dollars per year.
With the current government’s unrealistic pledge to not lay off any public sector employees as a way of curing the problem (which was caused by public sector unions) there is virtually no other option other than default. That default however, exposes major financial institutions in the U.S. who have extraordinary influence over the U.S. government.
A federal bailout is the best solution for them. However, a bailout or bankruptcy would send shock waves across the Municipal Bond market. Every city and every state and every state and every country that is in trouble will want one too. The federal government refused to do that for Detroit for that same reason. Were that to happen the entire U.S. system would collapse; also leaving Puerto Rico in a disaster.
The way I see it there are only two options. Put a federal authority in charge of reshaping Puerto Rico’s financial mess or simply cutting Puerto Rico loose debt and all and let the independent country of Puerto Rico fix its own problems. This nightmare scenario is only a few votes away in Congress.
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