Puerto Rico’s $70B Debt Weighs Heavy on U.S.

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Feb. 6 (Bloomberg) -- Bloomberg Economics Editor Michael McKee examines Puerto Rico’s economic troubles and its importance to U.S. markets on Bloomberg Television’s “Bloomberg Surveillance.”

Do not get about puerto rico?

Most people do not realize how indebted they are and how much that could influence the overall muni market and mom and pop because they have a lot of investments they do not know about.

Some people say this could be the next greece.

It is possible.

They have 70 billion in debt him as you mentioned, and they cannot pay it at this point.

The island has been in recession for eight years.

The question is, can they continue to borrow to fill the whole?

Which is what they have been doing.

They keep borrowing and expanding the amount they owe.

650 million dollars is the deficit this year.

You and i got to scathing e-mails saying the market is wrong on this.

-- two scathing e-mails saying the market is wrong on this.

You have to read between the lines.

They can continue to pay the debt.

You look at the yield and trading at emerging-market levels, about 400 at the basis point spread to normal aaa ratedmunis.

-- aaa rated munis.

So many bond funds, three quarters of all bond funds own puerto rico debt.

A lot of people do not know it is in there.

So if they -- the hedge funds can take advantage of it, but the average fund will not be able to.

They could face the possibility of having a lot of the portfolio default.

What could policymakers do?

Obviously one comparison is it cannot be valued at currency.

What are the other options?

Puerto rico has a real problem.

There are not a lot of options, except to pray for time and take steps.

They have raised taxes significantly.

They are also trying to stimulate growth and cut spending as much as they possibly can, which of course is always politically difficult.

Bringing down the deficit and, while at the same time hoping the market tanked in for them.

Is congress thereir imf?/ in theory you could ask for a bailout.

Detroit went bankrupt and they did not do anything for them.

How would you do that politically?

Wasn't there a backdoor bailout a couple of years ago?

Manufacturing facilities were being taxed.

The goal was to raise money.

The multinationals were able to claim the taxes against federal companies.

It is considered foreign income.

So the irs has been letting it go as a credit against the taxes they owe in the united states.

While they have raised taxes and puerto rico, it has offset for many of the companies in the u.s. the obama administration says we are not doing anything for them publicly, but at some point this is a little bit of a backdoor help for them.

In what hostile bull scenario could puerto rico be like greece?

--in what scenario could puerto rico be like greece?

A company headquartered in virginia, 31% of the portfolio is puerto rico bonds.

If those default, everyone defaults and the portfolios will start to default.

Are we anywhere near -- you and i have been talking about this for at least five years.

Are we near, mom and pop watching the show who have a national portfolio need to start to worry about this?

Yes, we do need to start to worry about it, but whether or not we are really close to it is a real subject of debate.

We talk to someone on the show a week ago who said we are very close.

We will talk to john carmel later who says no, there are opportunities to make money off of this and hang in there long enough.

After the s&p downgrades, there are real questions.

Michael mckee on puerto rico all through the day on bloomberg television.

Lex we are keeping our eye on aol.

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This text has been automatically generated. It may not be 100% accurate.


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