Puerto Rico has begun defaulting on its $72 billion debt load, and a failure by Washington to assist the beleaguered U.S. territory could mean big trouble for our municipal bond market, says Nobel laureate economist Joseph Stiglitz of Columbia University.

"At risk is not only Puerto Rico but the safety and soundness of the rest of the $4 trillion U.S. municipal-bond market," he writes in The Wall Street Journal. "Contagion from Puerto Rico could mean higher municipal borrowing costs across the U.S." Puerto Rican bonds, of course, count as U.S. muni bonds.

The Barclays Municipal Bond index has returned 3.1 percent over the past year. That compares to 2.8 percent for the Barclays U.S. Treasury index. The muni index yields 2.3 percent, compared to 1.5 percent for the Treasury index.

While Puerto Rico has severely mismanaged its economy, the United States hasn't helped, Stiglitz says. "Washington treats Puerto Ricans as second-class citizens."

So what should we do?

• "The U.S. bankruptcy code should be amended to include Puerto Rico and open the way for orderly debt relief," Stiglitz argues.
• "If the U.S. is unwilling to provide assistance, Puerto Rico should be allowed to bring in the International Monetary Fund."

Meanwhile, as the Federal Reserve prepares to raise interest rates as soon as next month, many investors are worried about the impact on munis, Treasurys and everything else.

So how should we prepare? MarketWatch columnist Chuck Jaffe offers several suggestions, phrasing them in football terms to mark the return of NFL football.

For the core of your portfolio, "you don’t need funds that fit into every check-off on a style box—that would force an investor to have nine stock and nine bond funds at a minimum," he writes.

"But you need building blocks on offense and defense. Consider your core stock funds the offensive players and core bond funds to be your defense."

Hopefully those funds have above-average historical returns and below-average costs, Jaffe says. "This is a good time to review performance on a relative basis: make sure the funds on your team are keeping up at their position and in their asset class."

Related Stories:

• US Wage Laws Helped Sink Puerto Rico
• MarketWatch: Puerto Rico Debt Crisis Hurts US More Than Greece's Does