Think the PIGS Are in Trouble? These 7 US States Could Be Heading for Something Worse

[skyrock]

Think the PIGS Are in Trouble? These 7 U.S. States Could Be Heading for Something Worse

Out here on Cottage Grove it matters. The galloping
Wind balks at its shadow. The carriages
Are drawn forward under a sky of fumed oak.
This is America calling:
The mirroring of state to state,
Of voice to voice on the wires,
The force of colloquial greetings like golden
Pollen sinking on the afternoon breeze.
In service stairs the sweet corruption thrives;
The page of dusk turns like a creaking revolving stage in Warren, Ohio.

–from Pyrography, by John Ashbery 1987

The inevitable coming of the sovereign debt panic finally engulfed Europe this week as the derisively (or perhaps affectionately) named PIGS spilled their slop on the continent. But Portugal, Ireland, Greece, and Spain are hardly worthy of so much attention. In truth, they are little more than the currently favored proxies among the leveraged speculator community (cough) for the larger problem of all sovereign debt. Indeed, the credit default swaps on these smaller European satellite states were not alone this week in making large moves higher. UK sovereign risk rose strongly, and so did US sovereign risk. With a downgrade warning from Moody’s to boot.

Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large, US states such as California, Florida, Illinois, Ohio, and Michigan.

I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.

First, let’s consider a large state that didn’t make my list. Texas didn’t make the list because its unemployment rate has not risen high enough to reach my cutoff: a state must register broad, U-6 underemployment above 15%, and currently Texas has only reached 13.7% on that measure. Also, Texas’s total energy production nearly perfectly matches its total energy consumption. Of course, Texas has indeed had to borrow more than a billion dollars so far to pay unemployment claims, thus technically bankrupting its unemployment trust fund. That meets my criteria. But, it’s instructive to note Texas’ energy production capacity in this regard, as that produces dollars. And one of the big reasons US states are under so much pressure, like their European counterparts, is that they cannot print currency. Being able to produce oil and gas is the next best thing to printing currency. So, Texas doesn’t make my list.

The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.

Let’s consider the overall predicament for residents of states like California, with its epic housing bust, Ohio and Michigan at the end of the automobile era, or North Carolina and New Jersey in light of the financial sector’s demise. Not only have states such as these permanently lost key sectors that once drove their economies, but, residents in these states are over-exposed to structurally higher energy costs. The prospect for wage growth in the United States is now dim. We are already recording year over year wage decreases in real terms. The culprit? Energy and food costs. My seven states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.

US wage growth in real terms has been stagnant for years. And the most recent decade of higher oil prices has been particularly punishing to states over-leveraged to the automobile like California, Florida, and North Carolina where highway and road systems dwarf public transport. While it’s true that states like Ohio and California produce some oil and gas, the size of their populations overwhelm any production with outsized demand for electricity and gasoline. In contrast, and as I mentioned, it will be revealing to see how this depression ultimately plays out in such states as Colorado, New Mexico, Wyoming, Oklahoma, North Dakota, and Louisiana which are all net exporters of energy.

Were it not for peak oil, gasoline prices would have fallen to a dollar during this depression as oil returned to the lows of the late 1990’s–if not even lower. Petrol at 90 cents a gallon would begin to chip away at the painfully decreasing spread between punk wages and energy input costs, currently endured by underemployed Americans. Natural gas and coal prices are also much higher than they were at the lows of the 1990’s. And I need not remind: while energy prices are very 2010, the American workforce has lost so many jobs that our labor force has indeed returned the 1990’s.

21st century energy prices overlaid on a 20th century economy? That’s no fun at all. The mainstream economics profession, perhaps unsurprisingly, still does not pay enough attention to the interweaving of long-term stagnant wage growth, higher energy inputs, and the resulting credit creation that OECD countries took as the solution to resolve that squeeze. Given that one of out of eight Americans takes food stamps, a visit to states like Illinois, Florida, Ohio, and North Carolina would reveal that the difference between 15 dollar oil and 75 dollar oil, and 2 dollar natural gas and 5 dollar natural gas is large.

My seven states of energy debt represent a full 35% of the total US population. As with other US states, they face looming policy clashes between protected state and city workers on one hand, and the growing ranks of the private economy’s underemployed on the other. The recent circus at the LA City Council meeting was a nice foreshadowing that the days of unlimited borrowing by governments–against future growth based on cheap energy–is coming to an end. Washington can print up dollars and fund these states for years, if it so chooses. But just as with the 70 million people in Portugal, Italy, Greece and Spain, the 108 million people in these seven large states are probably facing even higher levels of unemployment as austerity measures finally slam into their cashless coffers, and reduce their ability to borrow.

-- source: http://seekingalpha.com/article/187051-think-the-pigs-are-in-trouble-these-7-u-s-states-could-be-heading-for-something-worse

[HK in AK]

They must be colluding with Glenn Beck, he had the same thing on his show.....

[Flagg]

While I think the financial problems facing the US and it's States are the most serious since the Depression, I don't think they are in the same category as "the PIGS".......Portugal, Ireland, Greece, Spain are in varying degrees of big trouble.....they also neglected to mention Italy.

Combine that with the high level of debt in Eastern Europe carried by the likes of banks in Switzerland and Sweden(to name but two) denominated in foreign currency and you have a gigantic steaming pile of poos.

US States are in varying degrees of financial distress...some are extremely serious......but the difference is that the US is far more likely to attempt to bail out it's States(certainly for a high price) by buying State bonds the same way it's selling T-bills...simply printing the money.

In this respect the US is far more flexible than the EU....and less likely to suffer from dangerous populist/nationalist uprising.

Will German citizens support bailing out Greeks, Spaniards, and Portuguese as much as folks from Idaho bailing out folks from California?

I doubt it.

Here's what I wrote a year ago here:


"The timing for rolling out the Euro couldn't have been better as the tide was coming in and lifting all boats.

Now that the tide is going out.....REALLY going out...I think it will be a question of the weakest links break the chain.

No homogenous, unified continental identity

*Folks from Texas may not like supporting folks in Arkansas, but I think it's safe to say they will put up with it longer and harder than say Germans/French supporting the Baltic States, Hungary, Romania, even Spain.

No cohesive central bank

*Although restricted by agreement, each central bank has to answer to it's respective people......cheating on current account/fiscal deficit agreements has become quite common......Spain and Greece are both far over 10%, and likely to go higher...until they can't

*single interest rate policy is a problem for disparate Europe...it's probably too high in Germany, but too low in Ireland...that's going to give respective people's the sh!ts

No central bond market

*without a central, singular bond market to act as a liquidity shock absorber working in conjunction with a singular central bank authority the EU is like very strong, but brittle steel........it has great strength.....but is potentially very brittle and may not flex well.

A comparison between the US and the EU is somewhat analogous to the US and Soviet Union moonshot programs.

The US has a Saturn 5 rocket

The EU has a N-1 rocket

The Saturn 5 rocket has far fewer "rocket motors"/federal reserve banks to align and syncronize

The N-1 rocket has far more "rocket motors"/respective central banks to align and synchronize

The success of the Saturn 5 rocket compared to the total failure of the N-1 rocket is not just coincidental in this analogy.....nor is the very real risk of both detonating in the world's most expensive financial fireworks display.

In my opinion, the risk of both the US and EU financial systems exploding is incredibly high......with the risk of the EU system exploding being a reasonable bit higher than the US, but it's all academic as one "rocket" blowing up is sure to detonate the other sitting on the pad right next door."

Tough times ahead.
Just my 0.02c

[skyrock]

EU is like a bunch of hyenas, while USA is like a hungry lion with a bunch of whining cubs (the states). Food is scarce, and a fight is in the horizon.


While I think the financial problems facing the US and it's States are the most serious since the Depression, I don't think they are in the same category as "the PIGS".......Portugal, Ireland, Greece, Spain are in varying degrees of big trouble.....they also neglected to mention Italy.

Combine that with the high level of debt in Eastern Europe carried by the likes of banks in Switzerland and Sweden(to name but two) denominated in foreign currency and you have a gigantic steaming pile of poos.

US States are in varying degrees of financial distress...some are extremely serious......but the difference is that the US is far more likely to attempt to bail out it's States(certainly for a high price) by buying State bonds the same way it's selling T-bills...simply printing the money.

In this respect the US is far more flexible than the EU....and less likely to suffer from dangerous populist/nationalist uprising.

Will German citizens support bailing out Greeks, Spaniards, and Portuguese as much as folks from Idaho bailing out folks from California?

I doubt it.

Here's what I wrote a year ago here:



Tough times ahead.
Just my 0.02c

[Mordoror]

EU is like a bunch of hyenas, while USA is like a hungry lion with a bunch of whining cubs (the states). Food is scarce, and a fight is in the horizon.

great choice of words, mister "i better choose not to be a diplomat in my life"
what about if i called USA shark that ripped of the whole world economy because of its own greediness (wanna a link to what was uncovered recently about bank of america ??)
whenever you want to patronize some states better look at who initiated the whole mess ....

[Nano]

Hahahha the mess the various EU states are in is their own just like the mess my state of California is in. Yeah no doubt the good people are going to end up paying up for all this mess or face a firing squad. Commiefornia(California) I suspect is doing a shotgun hose down of anyone that did not report taxes any one year regardless of the likelihood of that person actually being a tax cheat. If they catch you sleeping they garnish your wages and you're **** out of luck cause I doubt they will refund your money back any time soon. Commiefornia is already withholding more in state income taxes as well.

I expect the Feds and the states governments to be looking closely at people's bank accounts regardless at how unlikely it is for anyone making a meager living to be a "tax cheat" and more likely they are the few frugal people out there. I would advise anyone to be very careful of how much money they let linger/pile up in their bank account(s) since it will be an indicator to the leeches in government of easy pickings.

The U.S raiding of foreign banks is in full swing and it is only a matter of time they start looking closer to home once foreign banks/governments grow some balls and start fighting back. In any case thanks to the "investor" fears over the Euro the dollar gets to survive a few more hours as a result. I'd much more like to watch the EU burn in a financial storm first and take notes, because it is likely the same thing is going to happen here.

[skyrock]

EU collectively can put up a fight, but individually each one of them is just like a wild dog. If we imagine the world is just a wild Africa, the EU-hyenas metaphor is not too far from the reality. On the other hand, you have very right to call America a shark. Who initiated the mess is not important. What is important is who can survive and prevail.


great choice of words, mister "i better choose not to be a diplomat in my life"
what about if i called USA shark that ripped of the whole world economy because of its own greediness (wanna a link to what was uncovered recently about bank of america ??)
whenever you want to patronize some states better look at who initiated the whole mess ....

[Flagg]

great choice of words, mister "i better choose not to be a diplomat in my life"
what about if i called USA shark that ripped of the whole world economy because of its own greediness (wanna a link to what was uncovered recently about bank of america ??)
whenever you want to patronize some states better look at who initiated the whole mess ....

You might want to step back and take a deep breath before you go off all half-cocked emo.

Blaming the global financial crisis on the US is like blaming George Bush for your herpes....it would be prudent to look closer to home for many of your woes.

Maybe take a look at the leverage lending ratio's EU banks were and still are using........then compare them to US banks...then come back and try to argue the US is all to blame.

This is a huge set of problems.......pretty much everyone(bar the minority of responsible folks who maintained financial discipline) can wear some of the blame.....there's certainly enough to go around.

[California Joe]

^ It must have been hard for him to type with all of that financial sand in his hyena ****** huh.

[Flagg]

^ It must have been hard for him to type with all of that financial sand in his hyena ****** huh.

Hyenas are nasty buggers:

http://img222.imageshack.us/img222/6455/p1030100.jpg (http://img222.imageshack.us/i/p1030100.jpg/)

This Cape Buffalo was alive and kicking approx 18-24 hours before this photo was taken.......no wonder having an armed Ranger escort was mandatory!

It looked to be a younger and probably healthier Buff too based on it's boss.

[Nano]

LOL Flagg that picture reminds me metaphorically of course with my run in with what I like to call California's "auto-shotgun tax debt". I too would have ended up like that Buffalo financially speaking. We have our own share of hyenas and non too timid about eating their own. It was all too real for me and without a doubt a real indicator as to what is to come from the leeches and hyenas as the savanna drought reality sets in. The African savanna could be a real life example of what is going to happen financially/economically speaking of course. Perhaps you could come up with some metaphor/story. I much like that NFL one you told a while back.

[navybrook]

While I think the financial problems facing the US and it's States are the most serious since the Depression, I don't think they are in the same category as "the PIGS".......Portugal, Ireland, Greece, Spain are in varying degrees of big trouble.....they also neglected to mention Italy.

Combine that with the high level of debt in Eastern Europe carried by the likes of banks in Switzerland and Sweden(to name but two) denominated in foreign currency and you have a gigantic steaming pile of poos.

US States are in varying degrees of financial distress...some are extremely serious......but the difference is that the US is far more likely to attempt to bail out it's States(certainly for a high price) by buying State bonds the same way it's selling T-bills...simply printing the money.

In this respect the US is far more flexible than the EU....and less likely to suffer from dangerous populist/nationalist uprising.

Will German citizens support bailing out Greeks, Spaniards, and Portuguese as much as folks from Idaho bailing out folks from California?

I doubt it.

Here's what I wrote a year ago here:



Tough times ahead.
Just my 0.02c

The US government has no means to bail out the states when it is borrowing 40 cents of every dollar in the Federal Budget. The Fed can borrow more money for the states, but we are already borrowing $1.40 trillion a year. Someday the American people have to realize that we have to cut back, on everything, if we are to survive as a nation. There is no other choice. Not tax cuts, tax raises, tax breaks, Wall Street math, budget freezes (one of my favorite word games) and especially all the rhetoric in the world. We have to cut back. Hmmmm, a $700B defense budget proposed. More new uniforms, Hummer replacement, etc. etc..

[Flagg]

LOL Flagg that picture reminds me metaphorically of course with my run in with what I like to call California's "auto-shotgun tax debt". I too would have ended up like that Buffalo financially speaking. We have our own share of hyenas and non too timid about eating their own. It was all too real for me and without a doubt a real indicator as to what is to come from the leeches and hyenas as the savanna drought reality sets in. The African savanna could be a real life example of what is going to happen financially/economically speaking of course. Perhaps you could come up with some metaphor/story. I much like that NFL one you told a while back.

I've used so many metaphors and analogies on this forum over the years I think I may have used up my lifetime quota. :)

Lately and locally, I've been comparing African plains game to our economy.

Everyone gets on great when the rain falls and water hole is wide and deep........but when the dry season comes, the fangs and everyone's true nature comes out.

[Nano]

The US government has no means to bail out the states when it is borrowing 40 cents of every dollar in the Federal Budget. The Fed can borrow more money for the states, but we are already borrowing $1.40 trillion a year. Someday the American people have to realize that we have to cut back, on everything, if we are to survive as a nation. There is no other choice. Not tax cuts, tax raises, tax breaks, Wall Street math, budget freezes (one of my favorite word games) and especially all the rhetoric in the world. We have to cut back. Hmmmm, a $700B defense budget proposed. More new uniforms, Hummer replacement, etc. etc..
I agree, but sadly the only thing the majority of the American people have only realized a small number of things. One of them primarily is that they need what is essentially "free healthcare" and another one being that American Idol is on. The day the American people realize that they can not afford to continue living outside their means is far gone and as of now I'm convinced most are more interested in that new pair of shoes/jeans and are going to take your money to pay for it willingly or not. Taxes are already getting raised ever so slowing, but they are gradually going up in California. I predict a very sad future for what used to be ideally speaking the best model of a Republic since Rome. Watching Rome burn down is not as much fun when you happen to reside in it.

[Flagg]

The US government has no means to bail out the states when it is borrowing 40 cents of every dollar in the Federal Budget. The Fed can borrow more money for the states, but we are already borrowing $1.40 trillion a year. Someday the American people have to realize that we have to cut back, on everything, if we are to survive as a nation. There is no other choice. Not tax cuts, tax raises, tax breaks, Wall Street math, budget freezes (one of my favorite word games) and especially all the rhetoric in the world. We have to cut back. Hmmmm, a $700B defense budget proposed. More new uniforms, Hummer replacement, etc. etc..

While I agree the US actually doesn't have the means to bail out the states(and everyone else in a VERY long queue), it still possesses a somewhat functioning reserve currency.

Until the reserve currency is well and truly treated like a $5 dollar whore, where even the shoeshine kid in Ulaanbaatar, Mongolia knows it's been overly abused and refuses to accept it.......the US can still do stupid financial things....and the US WILL continue to do stupid financial things even though it can't actually afford to do them.

The US is like a crackhead with a magic lamp, the magic lamp being the global reserve currency....it's wasted it's first 2 wishes on.......crack.

What's the last wish going to be?

I really doubt it will be a wish for a stint in rehab or world peace.....or a wish for more wishes.

I agree with you 100%...........but do the other 98 people around us everyday think the same yet?

I'd settle for 60 out of a 100...but then you gotta get them to actually vote and hold their leadership accountable.

And Scott Brown notwithstanding, we're not even close to being there yet are we?

Here's what I predict:

Pain

slight recovery overhyped

The People's Elbow of Pain

even smaller recovery overly, overly hyped

Pain Squared

massive recovery predicted! But doesn't actually happen.

"Knock Knock." 'Who's there?" "Pain!"

A bit like a slinky going down a flight of stairs or a bouncing ball.......dropping lower(in REAL if not nominal terms) every leg with smaller "recoveries" in between.

At the end of it we will go either in the right direction(another Apollo/Manhattan sized successful project to reindustrialize the US, revolutionize education and healthcare and free it from fossil fuel addiction ) or we will go in the wrong direction(populist/nationalist sweet-talk with citizenry willing to sell their freedom to keep their made in China Wal-Mart sh!t).

[Nano]

I've used so many metaphors and analogies on this forum over the years I think I may have used up my lifetime quota. :)

Lately and locally, I've been comparing African plains game to our economy.

Everyone gets on great when the rain falls and water hole is wide and deep........but when the dry season comes, the fangs and everyone's true nature comes out.



"Until the reserve currency is well and truly treated like a $5 dollar whore, where even the shoeshine kid in Ulaanbaatar, Mongolia knows it's been overly abused and refuses to accept it.......the US can still do stupid financial things....and the US WILL continue to do stupid financial things even though it can't actually afford to do them.

The US is like a crackhead with a magic lamp, the magic lamp being the global reserve currency....it's wasted it's first 2 wishes on.......crack.

What's the last wish going to be?

I really doubt it will be a wish for a stint in rehab or world peace.....or a wish for more wishes. "


I suspect mp.net is going to be getting a lot more press with some liberal use of your metaphors in some mainstream news papers soon. That one definitively explains the stage we are now in. The fangs are starting to come out and non too shy about showing off their tax-paid bleached canines anymore.

P.S. Hahha a new one goes to show you that there is only an empty cup in an empty mind. You're neither.

[Ordie]

Unlike the Federal Government or Nation States, individual US states are sometimes mandated to have a balanced budget every year.

[Mordoror]

You might want to step back and take a deep breath before you go off all half-cocked emo.

Blaming the global financial crisis on the US is like blaming George Bush for your herpes....it would be prudent to look closer to home for many of your woes.

Maybe take a look at the leverage lending ratio's EU banks were and still are using........then compare them to US banks...then come back and try to argue the US is all to blame.

This is a huge set of problems.......pretty much everyone(bar the minority of responsible folks who maintained financial discipline) can wear some of the blame.....there's certainly enough to go around.

@Flagg
what i criticized in my sentence is only the poor choice of word. Naming some states "hyenas" is quite derogatory
and thank you for the tips but i am fully aware that for this time, states have not a lot of things to do with the global financial crisis except they, including and mainly USA, pushed hard for low loan interests without any appropriate security system....allowing the bank to play and over play with money without any control
In this whole chat, those to be blamed are the banks mainly (including the big centralized organisms like the FED and BCE) but also the few control systems that didn't made their works as well as the groups giving the trust marks to the banks that allowed these last ones to do all and everything

[hatchet_harry]

While I agree the US actually doesn't have the means to bail out the states(and everyone else in a VERY long queue), it still possesses a somewhat functioning reserve currency.

Until the reserve currency is well and truly treated like a $5 dollar whore, where even the shoeshine kid in Ulaanbaatar, Mongolia knows it's been overly abused and refuses to accept it.......the US can still do stupid financial things....and the US WILL continue to do stupid financial things even though it can't actually afford to do them.
the dollar even gained some ground against the euro because of the pigs. it gets interesting, when you compare the development of euro to dollar exchange rate and prices for ressources (...oil). in a nutshell: euro loses to dollar, oil price goes down, as we witness it right now.

the reserve currency and oil being traded in dollars gives the us carte blanche to devalue the dollar as they please and so continue to live on credit without the nasty side effects.

what if the eu would like the same benefits? or say countries like for example germany are unhappy about some southern eu countries messing with their currency. bailing them out brings its implications, not bailing them out ruins the euro. catch 22 of some kind.

well if the euro was more important in terms of reserve currency and ressources were traded in euros they would have half the hassle. how? well take again the oil example. i could imagine countries like russia and norway would probably be willing to trade their oil for economic reasons. others like venezuela and the iran just to piss the us off.

i can't imagine something like that happen in the near future, as the dollar is still too important. however, if it did happen, that would definitely be a kick to the shins of the united states. the eu and the us are economic rivals anyway.

i'm in no way an expert in these things. please feel free to point out mistakes i made.

[tea drinker]

Isn't it alphabetically, aesthetically more sensible to use GIIPS. Also includes 1 gram of cop on.

[Flagg]

the dollar even gained some ground against the euro because of the pigs. it gets interesting, when you compare the development of euro to dollar exchange rate and prices for ressources (...oil). in a nutshell: euro loses to dollar, oil price goes down, as we witness it right now.

the reserve currency and oil being traded in dollars gives the us carte blanche to devalue the dollar as they please and so continue to live on credit without the nasty side effects.

what if the eu would like the same benefits? or say countries like for example germany are unhappy about some southern eu countries messing with their currency. bailing them out brings its implications, not bailing them out ruins the euro. catch 22 of some kind.

well if the euro was more important in terms of reserve currency and ressources were traded in euros they would have half the hassle. how? well take again the oil example. i could imagine countries like russia and norway would probably be willing to trade their oil for economic reasons. others like venezuela and the iran just to piss the us off.

i can't imagine something like that happen in the near future, as the dollar is still too important. however, if it did happen, that would definitely be a kick to the shins of the united states. the eu and the us are economic rivals anyway.

i'm in no way an expert in these things. please feel free to point out mistakes i made.

The US dollar is the current reserve currency...until the world finds something better....which could be a while.

The Euro is not going to replace it...especially since those voting with their money in the very short term are voting against the Euro until the issues with Greece, Spain, Portugal, Ireland, Italy, et al is dealt with.

I suspect we may be starting another leg down.

I just watched a one hour video on China's economic bubble that was very bloody scary.......I doubt China's Yuan is going to supplant the Dollar anytime soon.

People(and most importantly central banks) continue to use things like Gold as a store of value....I think increasingly people will consider Energy to be a store of value as well.