There is no other option,” García said, according to The New York Times. “I would love to have an easier option. This is not politics; this is math.” – Business Insider

I have certain respect for Alejandro García Padilla. He has my prayers and condolences. He is the Governor of Puerto Rico and may have other personal problems as well. You see Puerto Rico’s debt equals 70% of its annual economic output. That puts the entire island underwater regardless of your opinion on the future of manmade climate forcings.

I respect Padilla because he made the worst mistake you’ll ever see in politics. He called the outside kid a total b@#$%^&*. He looked at reality and described it without the usual euphemism. He smelled the pile of used food on the plate before him and made the unforgivable political error of not describing it as vegetation-enhancement formula. He had the basic decency to refrain from expecting his electorate to drink the fecal-chloroform water.

So what’s the problem there Sparky? Well, if you buy a lot of the muni-bond funds traded on Wall Street, this a YP, not just a PRP. Oh, and the pile of used food is eight times bigger than the one emitted by the municipal government of Detroit, MI.

Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds. Its call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending. Perhaps more important, much of Puerto Rico’s debt is widely held by individual investors on the United States mainland, in mutual funds or other investment accounts, and they may not be aware of it. Puerto Rico, as a commonwealth, does not have the option of bankruptcy. A default on its debts would most likely leave the island, its creditors and its residents in a legal and financial limbo that, like the debt crisis in Greece, could take years to sort out.

I can see the Adopt-A-Highway Signs going up near San Juan tomorrow. “This stretch of freeway is proudly maintained by Idiot Bond Fund Advisor. It was pretty much the last trade he executed anywhere other than is own, personal E-Trade account.” So Puerto Rico will soon be short of suckers investors so Governor Padilla is doing what failed states other than Greece do under such circumstances.

García has taken several measures to help generate more government revenue, including signing legislation raising the sales tax to 11.5% and creating a 4% tax on professional services. The sales tax increase goes into effect Wednesday, and the new services tax on October 1, to be followed by a transition to a value-added tax by April 1.

And of course, it impacts other non-Puerto Ricans who need to borrow from the same markets that are currently choking on Puerto Rico’s um, discharge. Now the borrowing costs for various other participants are going to go up. Eventually, this unconstrained level of stupidity will lead to another full-scale financial meltdown like it almost did in 2007-2009.