by James Corbett
TheInternationalForecaster.com
August 4, 2015

Sometimes we have to step back from the day-to-day news cycle to realize just how crazy things have become.

Remember the Madoff scandal? The decades-long Ponzi scheme that ultimately bilked investors out of a staggering $65 billion? If that scam had been exposed at any other time in human history, even just a few years before, it would have been the story of the decade. But coming as it did in the wake of the Lehman collapse and the multi-trillion-dollar banker bailout swindle, it came and went like just another news story.

Or the LIBOR rate rigging scandal? The acknowledged manipulation of the London Interbank Offered Rate that underpins a mind-boggling $800 trillion of securities and loans globally? Again, in any other era this story would have been the undisputed financial scandal of the century. But here in 2015 the story gets boiled down to the conviction of a 35-year-old trader (or, as the MSM prefers to call him, “ringmaster“) and the world gives a collective yawn and goes back to important news; you know, lion hunting and banning flags and the like.

Well, time to put another crazy story on that list. On Monday Puerto Rico missed a $58 million municipal bond payment, thereby setting off the biggest municipal default in US history. The Commonwealth is already being compared to Greece, and this is universally acknowledged to be the thin edge of the wedge of an unpayable public debt “death spiral” . . . but if you dozed through the evening news’ finance updates you might have missed it.

The default concerns the Puerto Rico Public Finance Corporation, a subsidiary of the Puerto Rico Government Development Bank that issues municipal bonds to fund the government’s executive branch. Although this $58 million missed payment is small potatoes when it comes to the island’s ongoing $72 outstanding debt crisis, it is being portrayed as a “strategic default” designed to give the Puerto Rican government more leeway to negotiate a debt restructuring program with its creditors and prioritize resources for more pressing debt payments. The government, naturally, is portraying itself as the victim of predatory lenders who won’t give the beleaguered commonwealth a break. In reality, the problem is largely one of the government’s own making: Its negotiating strategy—demanding debt haircuts while refusing to do anything to address the underlying problems—is only exacerbating the situation.

But with all due respect to the Puerto Rican people and the very serious challenges facing them in this debt crisis, this story may be just the first domino to fall in what could very well be a disastrous second half of the year for the American economy (and, by extension, the global economy). What follows in the coming months will be a procession of events that could threaten to bring the US’ own financial woes into sharp focus and bring the economy to a standstill with it.

First up on the block: the September meeting of the Federal Open Market Committee. All eyes will be on the September 17th press conference at the end of the meeting, where it is very likely that the Fed will go ahead with its planned rate hike, defying economic reality and almost certainly plunging the economy into recession (if not much worse), exactly as happened in 1937. And let’s not forget that the FRBNY has already taken the incredible precaution of setting up an emergency adjunct office in Chicago to keep things going in the event of “disruption” during the coming rate-hike period.

Next up: another US government budget/shutdown melodrama. That’s right, the federal government is once again facing a shutdown if Congress critters don’t hammer out a funding bill by September 30th. And then, even if a stopgap funding bill is passed, Congress will need to pass another debt limit hike by the end of the year in order to continue running the country on funny money, hope and change-ium. Although these negotiations are never more than an excuse for partisan grandstanding and although neither side of the statist government mafia would think of actually pulling the plug on the game itself, these episodes have very real potential consequences for the country’s credit rating, and consequently on global credit markets.

Given that we are already going through an extremely sensitive moment in the global economic “recovery” (insert laughter here), with plunging oil prices, an out-of-control Chinese stock market, and the smoldering wreckage of the Greek crisis weighing down the Eurozone, a one-two punch of a Fed rate hike and US credit rating downgrade could very well be the spark to set off the global economic powder keg. And all of this right before the IMF/World Bank annual meeting in October (with the potential to crown the Chinese yuan as a world reserve currency) and the upcoming G20 leaders’ summit in Turkey in November (with the potential to kick the New World Order football further down the field, just like in 2009).

Could this be the beginning of a global economic derailment? Certainly there is no shortage of articles in the alternative economic media predicting disaster in September of this year (right in time for the end of the current Shemitah cycle, no less). All that we know for sure at this point is that the future of the global economy now rests in the hands of the same central bankers and puppet politicians who have been looting the economy like madmen for the last decade and are now making very visible signs of preparation for a collapse.

Given all of this, let’s hope that this Puerto Rican default will be the worst tragedy to befall the American economy this year . . . but let’s prepare for something much worse.