Financial advice radio host Bob Brinker used to say “no state has ever defaulted on General Obligation Bonds – don’t worry!”. That’s technically still true since Puerto Rico is not a state (yet).<\/p>\n
http:\/\/money.cnn.com\/2016\/07\/01\/investing\/puerto-rico-defaults-general-obligation-bonds\/index.html<\/a><\/p>\n General Obligation Bonds are debt that has to be paid before everything else. They should be risk free since they have first rights to the revenue stream. Revenue bonds are the other main type of government bonds – they are used to build specific things – sewer projects, toll roads, airports, etc… That should have a revenue stream to pay them back. In the event of default, the lender can take over the asset, but can’t go after all of the taxpayers.<\/p>\n Puerto Rico has a peculiar history that doesn’t blend well with the United States. Up until the Spanish American war in 1898, Puerto Rico was a colony of Spain. Like much of the Carribean, it was at the heart of the African slave trade. Slavery ended in 1873, with slaves required to work three more years to get their freedom. <\/p>\n When the US won the Spanish American war, Cuba was given its freedom, but Puerto Rico has been in limbo ever since – neither a country nor a state. Puerto Ricans are US citizens but don’t pay federal income taxes as long as their income is in Puerto Rico.<\/p>\n One obstacle to the economy of Puerto Rico is the unresolved question over who owns the mineral rights around the island. Surveys say there may be 8 billion barrels of oil within two fields and natural gas reserves, but the oil companies won’t put money into developing them until the issue is resolved. Typically, the rights holder gets 1\/7th of the value of oil and gas. At $50 bbl, 8B x $50 X 1\/7 = $57B… The amount in default today is $2 billion, but their total debt is about $167 billion.<\/p>\n Perhaps they need to build some toilet paper factories.<\/p>\n","protected":false},"excerpt":{"rendered":" Financial advice radio host Bob Brinker used to say “no state has ever defaulted on General Obligation Bonds – don’t worry!”. That’s technically still true since Puerto Rico is not a state (yet). http:\/\/money.cnn.com\/2016\/07\/01\/investing\/puerto-rico-defaults-general-obligation-bonds\/index.html General Obligation Bonds are debt that … Continue reading