This week, Puerto Rico declared a form of bankruptcy as the island was left with no choice. Years of debt accumulation combined with ineffective government policies and other issues finally became too much for the island to bear, and the day of financial reckoning had arrived.
This Puerto Rico bankruptcy could potentially have extremely far-reaching effects, and it should cause concern for U.S. citizens and investors.
In short, the bankruptcy could bludgeon investors, undermine state and municipal governments and change the retirement plans of many. It could also be seen as a shot across the bow, as the U.S. and many of its states and municipalities are not far behind.
At this point, through the judicial process, an oversight board will attempt to negotiate the island’s debt with creditors and look for significant haircuts that could help put the area back on the way to financial solvency.
Here are just a few ways in which this historic bankruptcy could affect the public:
Retirement savings may take a hit
Municipal bond funds and mutual funds could have exposure to Puerto Rican bonds. Needless to say, these assets could potentially nosedive as these bonds may be subject to significant haircuts.
In addition, residents of the island could potentially see their pensions take a hit, and some reports have suggested that such pension cuts could be up to 20%.
Borrowing costs may rise
The Puerto Rican bankruptcy shows that even large governments and municipalities can fall into bankruptcy. Seeing these risks come to fruition could make it more challenging for states and governments to borrow capital. Look at cash-strapped Illinois, for example. The state has massive debt, underfunded pensions and more. Look at Chicago. Look at New Jersey. Any one of these municipalities could potentially find themselves in the same shoes as Puerto Rico someday. The fear of insolvency may drive up borrowing costs for these and other areas, hitting you in the pocketbook as the costs of services such as education and health care rise.
With no government bailout on the horizon, it will be interesting-and sad-to see how the issue plays out.
Puerto Rico could be the first of other dominos to fall, and if you aren’t scared perhaps you should be.
Puerto Rico is a prime example of massive debt accumulation due to consistent overspending.
Cities, states and even countries could be headed down a similar path.
If you do not own assets that could potentially hold their value or increase in value under such circumstances, now is the time to consider an allocation.
Hard assets like physical gold may potentially help preserve your wealth in such a scenario, and gold cannot be subjected to devaluations or “haircuts” like bonds or other asset classes.
Building an allocation in physical gold has never been easier. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how to buy and hold physical gold using your IRA account.
Don’t ignore the writing on the wall. Take steps now to help protect your financial future. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, bankruptcy, gold, municipal bonds, oversight board, puerto rico, underfunded pensions