Puerto Rican Debt Crisis Puts American Retirement Funds At Risk (Video)

by: SchiffGold

By Mike Finger

Peter Schiff appeared on Fox Business yesterday, warning that whether they know it or not, many Americans own Puerto Rican bonds in their retirement portfolios. If Puerto Rico were to default on its debt, the fallout would have a much bigger effect on average Americans than Greece leaving the eurozone. More importantly, Peter believes Puerto Rico provides a peek into the future of the United States:

The reality is Puerto Rico is in better fiscal shape than the United States. They have a lower debt-to-GDP than we do. The only difference is, investors aren’t worried yet because the Fed is monetizing all of our debt. If we had a QE program for Puerto Rico, they wouldn’t have a problem either…”

Highlights from the interview:

“I didn’t buy any of the [Puerto Rican] debt. I’m not that dumb. I bought some real estate, which has actually gone up in value. I have an office there too. It’s my asset management company, which moved to San Juan about a year and a half ago from Newport Beach, California, where I had a fifty percent effective tax rate. Now I have a four percent effective tax rate. I think that was a smart move, but I didn’t buy any bonds, nor did I recommend it to any of my clients to buy Puerto Rican bonds…

“[They’re] certainly facing default. I’ve been advocating default for Puerto Rico, because I think they’ve borrowed too much money, unfortunately. Because of the low interest rates, we entice their politicians. Everybody wanted Puerto Rican bonds… because it was tax-free everywhere. So they borrowed a lot of money, made a lot of promises to get elected, and now the bills are coming due and they can’t pay. I don’t think they should be struggling, I think they should default…

“I think we benefited from the Greece problems, because it caused some capital flight into the United States. But Puerto Rico is going to mean losses for Americans who are holding Puerto Rican debt. But I think it also could mean a re-rating of all municipal debt as creditors start to become a little more risk-adverse and start to price in a default, not just in Puerto Rico but in other municipalities…

“The reality is Puerto Rico is in better fiscal shape than the United States. They have a lower debt-to-GDP than we do. The only difference is, investors aren’t worried yet because the Fed is monetizing all of our debt. If we had a QE program for Puerto Rico, they wouldn’t have a problem either. They could keep borrowing money…

“Also, Americans lose money. Most Americans don’t own any Greek government bonds. But they probably own some Puerto Rican government bonds. Whether they know it or not, they’re in their muni bond portfolio. But this is just a look into America’s future. Also, for all those people out there who think a $15 an hour minimum wage is a good thing, in Puerto Rico the effective minimum wage is $15 an hour when you take into account their lower income. They’ve got 20% unemployment. The labor force participation rate in Puerto Rico is only 42%, because of the minimum wage. You’ve destroyed employment in Puerto Rico with a high minimum wage. The same thing would happen on the mainland if we’re dumb enough to raise minimum wage to fifteen bucks here…”