Puerto Rico’s legislature declined to pass a set of tax laws that would have opened up some extra financing to the island. Severe cuts to services, and perhaps even a disorderly default, are now in the cards.

Puerto Rico has a terminal case of the Blue Social Model. The island’s highest court has ruled that recent reforms of teachers’ pensions are unconstitutional.

Puerto Rico is depending on Wall Street cash prop up its ailing blue model government. The commonwealth just numbs the pain for a spell, but the banks make a pretty penny in underwriting fees.

There are two reasons Americans need to pay close attention to the disaster unfolding in Puerto Rico. First is that thousands of our island friends are joining us on the mainland in search of opportunity. These are not hordes of low-skilled workers; things have gotten so bad in PR that its professionals and middle-class workers are fleeing. The second reason is that, while for Puerto Ricans the decay of their home seems excruciatingly slow, it’s enduring a sped-up version of what threatens some of our mainland blue states. Illinois should be watching with horror.

Puerto Rico’s descent into junk territory has been about as certain as death and taxes, but last night it finally happened: ratings agency Standard & Poor’s cut the blue commonwealth’s debt to below investment-grade status, giving Puerto Rico membership in the very exclusive club of municipalities with junk-rated debt. Less than one percent of municipalities (and no states) share the honor.

Moody’s has threatened to downgrade Puerto Rico to junk status unless it borrows money this month. Unfortunately, it could be downgraded anyways if it can’t secure favorable interest rates on this borrowing.

A number of Puerto Rico’s bondholders are meeting in New York this week to discuss the increasingly real possibility that they may not be paid back. Like Detroit before it, Puerto Rico has been spiraling toward default for years now, but unlike Detroit, Puerto Rico’s status as a territory will make it legally impossible for the island to enter bankruptcy. Instead, it’s beginning to look likely that that the island could issue a moratorium on its debt repayments until it figures its situation out. Unfortunately, Puerto Rico’s debt crisis is so bad, that it’s not clear what more the government can actually do to fix it, and the Supreme Court’s hesitation to allow pension reform isn’t helping.

Experts are now warning that Puerto Rico’s economic meltdown could have ripple effects on retirement funds on the mainland. Puerto Rico could turn into a bigger disaster than Detroit.