America’s home-grown “Greece” is trapped in a vicious circle as a shrinking economy and an exodus of workers pushes the debt ratio through the roof
Puerto Rico has triggered the biggest municipal default in US history, risking years of bitter legal warfare with creditors and an austerity “death spiral” with echoes of Greece.
The island Commonwealth finally ran out of money on Monday after a desperate effort to stay afloat, and missed a final deadline for a $58m payment – handing over just $628,000.
It implies a sweeping default on much of its $72bn debt burden, equal to 100pc of Puerto Rico’s gross national product (GNP) and more than five times the debt ratio of California or Texas.
‘We are reaching the end game in Europe. If they don’t launch real QE soon, the consequences are too awful to contemplate,’ warns RBS
A key gauge of deflation risk in Europe is flashing red, dropping to record lows on fears of fresh recession and lack of decisive action by the European Central Bank.
The sudden lurch downwards came as Bank of America warned that France’s debt ratio could rocket to 120pc of GDP within five years, unless the EU authorities take radical steps to reflate the region’s economy. Italy’s debt could threaten 150pc even earlier.
The 5-year/5-year forward swap rate monitored closely by traders plummeted beneath 1.77pc on Friday morning as a global growth scare drove European stock markets to a 12-month low.
“This rate is the most important market signal on the planet right now. Everybody is watching the chart, and it has just gone off a cliff,” said Andrew Roberts, credit chief at RBS.
America faces a seminal reality: We are broke, and we are getting broker by the day. This is the real “fiscal cliff” the country is about to jump off, not the artificial one consuming Washington. Instead of confronting our looming insolvency, the electorate voted to take the plunge. It ratified Mr. Obama’s drive to erect the equivalent of a Franco-German welfare state. Consider Obamacare, the massive stimulus, failed green-energy boondoggles, record numbers on food stamps, constant extensions of unemployment benefits, public housing subsidies, unprecedented government spending and free contraception.
Voters chose economic security over individual opportunity, handouts instead of self-reliance, statism over capitalism. Rather than rebuking Mr. Obama, they rewarded him. Continue reading