Puerto Rico poses bigger threat to U.S. investors than Greece

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U.S. commonwealth has lost the ability to fund itself through public debt markets

By Ellie Ismailidou

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Puerto Rico is hurtling toward default and U.S. investors are set to face the losses.

As U.S. investors have been panicking over a potential Greek collapse, Puerto Rico’s governor Sunday announced that the small U.S. territory cannot pay its roughly $72 billion in debt.

Less than 24 hours later, Gov. Alejandro Garcia Padilla proposed a plan to seek a restructuring of the island’s debt, suggesting that the island is virtually insolvent.

A long-awaited report compiled by former International Monetary Fund staffers brought the Puerto Rican debt crisis back into the spotlight.

The report concluded that the U.S. commonwealth has lost the ability to fund itself through public debt markets, while pointing to what the authors described as “a decade of stagnation, outmigration and debt.”

Although the Puerto Rican debt crisis is no secret to residents of the island, the governor’s statement essentially was the first official opening for a renegotiation of the debt, said economist Carlos Soto-Santoni, president of Nexos Económicos, a Puerto Rico-based consulting firm, and deputy adviser for former Governor Rafael Hernández Colón’s administration.

But the problem is that, as per the U.S. constitution, Puerto Rico cannot file for Chapter 9 bankruptcy, like Detroit did, and neither can its public corporations and local agencies, Soto-Santoni added.

So the governor is basically seeking a negotiated agreement with bondholders for a postponement of payments on the debt for a number of years.

The question that remains unaddressed, however, is what would revive growth on the island, as gross domestic product per capita is dwindling while debt per capita has been rising.

“In that sense, Puerto Rico is just like Greece,” Soto-Santoni said.

But U.S. investors would actually have much more to lose in a potential Puerto Rican default than in a Greek default. The reason is that Puerto Rico’s bonds are trading in the U.S. municipal bond market, while the vast majority of Greek debt is in the hands of the International Monetary Fund, the European Central Bank and eurozone countries.

“[According] to most recent estimates about 60% of [Puerto Rico’s] bonds are owned by traditional municipal bond investors and the rest is in the hands of hedge funds and other crossover investors.”
Daniel Hanson, an analyst at Height Securities, LLC

Out of about $350 billion in Greek debt outstanding, only around $14 billion is owed to U.S. banks.

Conversely, in Puerto Rico’s case, the debt is all in U.S. holdings, totaling about $72 billion.

“Exact numbers are hard to come across, because hedge funds do not have the same disclosure obligations as traditional muni-bond owners. But according to most recent estimates about 60% of the island’s bonds are owned by traditional municipal bond investors and the rest is in the hands of hedge funds and other crossover investors,” said Daniel Hanson, an analyst at Height Securities, LLC.

The Commonwealth has been labeled “America’s Greece” as its bonds carry junk ratings, meaning its credit ratings are at the highest risk of default, and are trading at record-high yield, while growth has remained anemic, among a declining population and a shrinking tax base.

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On Sunday, Puerto Rico’s governor said that the island’s debt isn’t payable. “There is no other option. I would love to have an easier option. This isn’t politics, this is math.” On Monday Fitch Ratings downgraded Puerto Rico’s general obligation debt further into junk territory.

S&P also downgraded the rating from CCC+ to CCC-, a two-notch downgrade reflecting imminent concern of default on $72bn of debt.

Puerto Rico benefited from being a U.S. territory, particularly because it issues bonds in the U.S. municipal market that are tax exempt, which made them more attractive to investors. But that led to overborrowing that made the debt balloon to unsustainable levels.

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The crisis persists, despite the fact that lawmakers — just like in Greece — have had to pass a series of unpopular measures, including two rounds of pension cuts, $1 billion in new taxes, a hike in water rates and sharp reductions in the education budget.

Puerto Rico’s problems are uncannily similar to Greece’s, except that its woes are the U.S.’s problem.

Executive Order on Overtime May Spark Next Recession

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Businesses cannot always afford to pay overtime

By Michael Carr   |   Wednesday, 01 Jul 2015 07:43 AM

Economists using data to forecast economic growth might want to focus some attention on the White House instead. Based on the pursuit of fairness rather than data, the Obama administration decided 5 million workers deserve a raise.

New rules about who qualifies for overtime could prove to be devastating to small businesses and will most likely hurt millions of employees.

In the past, workers in management positions were exempt from overtime pay rules as long as they made about $11.38 an hour. New rules will require anyone making less than $24.25 eligible for overtime. The old rule might have set the bar too low but the new rule seems high based on what people earn.

Entry-level managers at fast-food restaurants, for example, who have worked their way up to jobs paying $30,000 a year will be forced into hourly schedules. College grads entering the workforce in salaried positions earnings $45,000 a year will be forced into hourly schedules. It’ll be illegal for these employees to exercise initiative by working later to learn their job or earn a promotion.

Businesses cannot always afford to pay overtime so many workers will be forced into hourly positions. They could then see their hours cut and the size of their pay checks reduced.

Productivity will suffer as employers focus on hours worked rather than output. This could be a drag on economic growth.

Prices could rise if employers are unable to control labor costs, leaving everyone paying more and hurting discretionary income.

Pain from the new rules will kick in after they take effect in 2016. Like many Obama administration decisions, this giveaway to supporters will cause pain after the president leaves office.

Odds of a recession in 2016 grow with each executive order and the next president is likely to start his or her term under the cloud of a bear market in stocks.

© 2015 Newsmax Finance. All rights reserved.

U.S. on Same Debt Path as Greece

Greek-style capital controls could come to U.S.
Published on Jul 1, 2015

It’s crunch time for Greece as IMF debt looms and bailout ends. Puerto Rico announced it’s about to suffer the same fate, and a new chart shows that the US is on the same debt path. American author and journalist, Nomi Prins, discusses the hidden alliances that drive American Power and how what we’re witnessing in the economy today is all part of the globalist bankster takedown plan.


15 Weeks: Treasury Says Debt Has Been Frozen at $18,112,975,000,000

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(CNSNews.com) – The portion of the federal debt that is subject to a legal limit set by Congress closed Friday, June 26, at $18,112,975,000,000, according to the latest Daily Treasury Statement, which was published at 4:00 p.m. on Monday.

That, according to the Treasury’s statements, makes 15 straight weeks that the debt subject to the limit has been frozen at $18,112,975,000,000.

$18,112,975,000,000 is about $25 million below the current legal debt limit of $18,113,000,080,959.35.

The Daily Treasury Statement for March 13 was the first to show the federal debt subject to the limit closing the day at $18,112,975,000,000. Every Daily Treasury Statement since then has reported the same thing: the debt closing the day at $18,112,975,000,000.

Every Daily Treasury Statement since Monday, March 16, has reported the debt beginning and ending each day at $18,112,975,000,000.

Table III-C on the Daily Treasury Statement for June 26 says the debt began the month of June at $18,112,975,000,000, began the day of June 26 at $18,112,975,000,000, and closed the day of June 26 at $18,112,975,000,000.


On March 13, Treasury Secretary Jacob Lew sent a letter to House Speaker John Boehner and other congressional leaders informing them that he was planning to declare a “debt issuance suspension period.”

A “debt issuance suspension period,” Lew said in his letter, was necessary because in 2014 Congress enacted legislation that “suspended” the debt limit until March 15 and then reinstated it on that date at whatever level the debt had reached by then.

“As you know, in February 2014, Congress passed the Temporary Debt Limit Extension Act, suspending the statutory debt limit through March 15, 2015,” Lew said in his March 13 letter. “Beginning on Monday, March 16, the outstanding debt of the United States will be at the statutory limit. In anticipation of reaching that date, Treasury has suspended until further notice the issue of State and Local Government Series securities, which count against the debt limit.”

State and Local Government Series securities, says the Congressional Research Service, are “customized securities available for state and local governments to hold proceeds of bond sales.” They are considered part of the federal government debt that is held by the “public.”

“Because Congress has not yet acted to raise the debt limit,” Lew said in his March 13 letter, “the Treasury Department will have to employ further extraordinary measures to continue to finance the government on a temporary basis. Therefore, beginning on March 16, I plan to declare a ‘debt issuance suspension period’ with respect to investment of the Civil Service Retirement and Disability Fund and also suspend the daily reinvestment of Treasury securities held by the Government Securities Investment Fund and the Federal Employees’ Retirement System Thrift Savings Plan.”

Lew informed Boehner that these same actions had been taken “during previous debt limit impasses.”

For example, as CNSNews.com reported, when Secretary Lew declared a debt issuance suspension period in 2013, the Treasury reported the debt subject to the limit was frozen at $16,699,396,000,000 for 150 days, running from mid-May to mid-October of that year.

The Treasury has posted Frequently Asked Question sheets that explain the actions the Treasury is taking during this “debt issuance suspension period” and their statutory basis.

“Under current law, if the Secretary of the Treasury determines that the issuance of obligations of the United States may not be made without exceeding the debt limit, a ‘debt issuance suspension period’ may be determined,” the Congressional Research Service said in a report published on March 27. “This determination gives the Treasury the authority to suspend investments in the Civil Service Retirement and Disability Trust Fund, Postal Service Retiree Health Benefit Fund, and the Government Securities Investment Fund (G-Fund) of the Federal Thrift Savings Plan.

“In addition,” said CRS, “this gives Treasury the authority to prematurely redeem securities held by the Civil Service Retirement and Disability Trust Fund and Postal Service Retiree Health Benefit Fund.”

“The total federal debt consists of debt held by the public and intragovernmental debt,” the CRS said in a report published in 2011. “Debt owed to the public represents borrowing from entities other than the federal government, and includes borrowing from state and local governments, the Federal Reserve System, and foreign central banks, as well as private investors in the United States.

“Intragovernmental debt,” said CRS, “consists in debt owed by one part of the federal government to another, which are mostly held in trust funds.”

The net effect of the Treasury’s actions is that although the publicly held debt of the government continues to fluctuate–as the Treasury redeems maturing debt held by the public and issues new debt held by the public—the overall debt subject to the limit set by Congress closes each business day at $18,112,975,000,000.

At the beginning of June, the debt held by the public was $13,052,706,000,000 and the intragovernmental debt was $5,100,145,000,000, according to the Daily Treasury Statement. By the close of business on June 26, the debt held by the public had increased by 18,125,000,000 to $13,070,831,000,000, and the intragovernmental debt had decreased by 18,275,000,000 to $5,081,870,000,000.

But on every business day of June–as on every business day for the last 15 straight weeks–the Treasury reported that the federal debt subject to the legal limit set by Congress closed the day at $18,112,975,000,000.

FBI investigating 11 attacks on San Francisco-area Internet lines

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The FBI is investigating at least 11 physical attacks on high-capacity Internet cables in California’s San Francisco Bay Area dating back a year, including one early Tuesday morning.

Agents confirm the latest attack disrupted Internet service for businesses and residential customers in and around Sacramento, the state’s capital.

FBI agents declined to specify how significantly the attack affected customers, citing the ongoing investigation. In Tuesday’s attack, someone broke into an underground vault and cut three fiber-optic cables belonging to Colorado-based service providers Level 3 and Zayo.

The attacks date back to at least July 6, 2014, said FBI Special Agent Greg Wuthrich.

“When it affects multiple companies and cities, it does become disturbing,” Wuthrich said. “We definitely need the public’s assistance.”

The pattern of attacks raises serious questions about the glaring vulnerability of critical Internet infrastructure, said JJ Thompson, CEO of Rook Security, a security consulting and services provider in Indianapolis.

Fiber-optic cables are essentially bundles of slender glass fibers that use light waves to transmit data. They are the interstate highways of the information superhighway, carrying vast amounts of data between decentralized hubs. From there, Internet services are delivered to homes and businesses by lower-capacity cables, including DSL.

In Arizona earlier this year, tens of thousands of residents were cut off from Internet service after someone sliced through underground fiber-optic cables.

In April 2009, underground fiber-optic cables in California were cut at four sites, knocking out landlines, cell phones and Internet service for tens of thousands in Santa Clara, Santa Cruz and San Benito counties.

“When it’s situations that are scattered all in one geography, that raises the possibility that they are testing out capabilities, response times and impact,” Thompson said. “That is a security person’s nightmare.”

Wuthrich said cutting the lines requires tools. Although fiber-optic lines themselves aren’t much bigger than diameter of a pencil, they’re usually protected by tough, flexible conduit. Citing the ongoing investigation, he declined to further discuss specifics of the attacks, which he said have generally occurred in remote areas not monitored by security cameras.

Mark Peterson, a spokesman for Internet provider Wave Broadband, said an unspecified number of Sacramento-area customers were knocked offline by the latest attack. He characterized the Tuesday attack as “coordinated” and said the company was working with Level 3 and Zayo to restore service.

Spokeswomen for Level 3 and Zayo confirmed the disruption but declined to discuss specifics.

“Law enforcement is involved and restoration crews are working to restore connectivity as quickly as possible,” Zayo spokeswoman Shannon Paulk said via email.

Level 3 and Zayo are primarily business-to-business Internet providers, connecting local services like Wave to the broader Internet with their high-speed fiber-optic lines.

Safeguarding these lines “is a massive challenge for municipalities, governments and Corporate America to deal with,” Thompson said.

Fiber-optic cable lines are everywhere and are very visible, said Richard Doherty, research director of The Envisioneering Group, a technology assessment and market research firm.

“There are flags and signs indicating to somebody who wants to do damage: This is where it is folks,” Doherty said. “You often have fiber from several companies sometimes going down the same street or the same trench. One attacker can dig one hole and wipe out service from three companies.”

Backup systems help cushion consumers from the worst of the attacks, meaning people may notice slower email or videos not playing, but may not have service completely disrupted, he said.

But repairs are costly and penalties are not stiff enough to deter would-be vandals, Doherty said.

“It’s a terrible social crime that affects thousands and millions of people,” he said.

Report: FBI Agents Telling Friends & Family to ‘Avoid July 4 Celebrations’

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U.S. on high alert for Independence Day events

by Paul Joseph Watson | July 1, 2015

Following warnings by the federal government that terrorists may be planning to attack Independence Day events, FBI agents are reportedly telling friends and family members to avoid major July 4 celebrations.

Gateway Pundit’s Jim Hoft cites an “inside source” who told him that, “FBI agents are telling their friends and family members to avoid “official celebrations.”

Hoft also claims that the FBI has canceled vacation for all its agents for the duration of the weekend.

Earlier this week, the Department of Homeland Security and the FBI issued alerts to local law enforcement and urged Americans to “remain vigilant” for this weekend’s July 4 events.

Former CIA Deputy Director Michael Morell also said Monday that he “wouldn’t be surprised” if there’s a terrorist attack during the 4th of July weekend.

“This one really resonates with me for two reasons,” Morell said. “One is there’s been about 50 people in the last 12 months who have been arrested in the United States for being radicalized by ISIS, wanting to go fight there or wanting to conduct an attack here, so there’s a lot of people out there who are seeing themselves as aligned with ISIS, number one.”

“Number two, you have this ISIS call to arms during Ramadan,” Morell said. “We are right in the middle of Ramadan, call to arms, conduct attacks against our enemies, so I’m worried about this one.”

Fox News also reported that the FBI is setting up command centers in all of its 56 field offices across the country to monitor potential terror threats.

ISIS supporters have recently intensified their social media propaganda campaign, with almost 100,000 tweets a day urging mass murder.

The warnings follow deadly attacks by ISIS last week in Tunisia, France and Kuwait that killed scores of people.

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