Courtesy of Mish.
Deficit spending and untenable pension obligations frequently go together, and always cause problems when they do.
Coupled with a buildup of debt, and a very bloated public sector (which also go hand-in-hand) Puerto Rico is about to fall to junk level.
Please consider Moody’s puts Puerto Rico on review for downgrade.
Citing Puerto Rico’s weak finances and economy, Moody’s Investors Service put the commonwealth’s general obligation rating of Baa3, the company’s lowest investment grade rating, on review for downgrade on Wednesday.
Moody’s also placed ratings capped by or linked to Puerto Rico’s general obligation rating on review, including the Puerto Rico Sales Tax Financing Corporation’s senior and junior lien bonds.
The moves affect approximately $52 billion of rated debt, the rating agency said in a statement.
Moody’s said it is concerned about Puerto Rico’s “weakening liquidity, increasing reliance on external short-term debt, and constrained market access, within the context of a weakened and now sluggish economy.”
“These developments exacerbate the longstanding financial strain brought by the commonwealth’s very high debt load and pension obligations, as well as its chronic budget deficits,” Moody’s said.
A major issuer of municipal bonds, Puerto Rico has been in or near recession for eight years. It has suffered from a loss of U.S. federal government economic support, spending cuts by its own government, high oil prices and population decline.
Exodus Underway
The Washington Post reports Puerto Rico confronts a rising economic misery.
Boxes and wooden crates filled with household items bound for the U.S. mainland are stacked high in the Rosa del Monte moving company’s cavernous warehouse, evidence of the historic rush of people abandoning this beautiful island.
Puerto Rico lost 54,000 residents — 1.5 percent of its population — between 2010 and 2012 alone. Since recession struck in 2006, the population has shrunk by more than 138,000 to 3.7 million, with the vast majority of the outflow headed to the mainland.
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