Meredith Whitney joins the Financial Sense Newshour to discuss how central corridor states like Texas, Colorado, and North Dakota will start to become the new engines of growth for the US economy. On the other hand, she warns, states with high taxes and large overhangs of debt, like California, may see stagnant growth for years to come.
How this will play out and what it means for everyday Americans, depending on which state they live in, is the focus of her new book, “Fate of the States: The New Geography of American Prosperity.”
Although some might claim that states like Kansas and South Dakota will never have the appeal of New York or sunny California, Whitney basis her long-term projections for a massive demographic shift within the country on what she says is emerging-market like growth in the central corridor due to low taxes, business friendly regulation, and cheap energy.
“You have a really powerful wave of onshoring going on in the United States,” Meredith says. “The energy revolution of cheap oil and gas because of shale technology…is making the US so competitive from a standpoint of manufacturing that more American businesses—40% plus percent of American businesses—are now building in the US that previously would’ve been offshored; and non-US businesses are moving more of their production to the US. So, [they’re] building new facilities and that’s creating incredible job opportunities and unemployment rates that are, literally, half the unemployment rates on the coast. So, there’s a pro-cyclicality to that and you have great, what I call, emerging markets' growth in some parts of the country and real stagnation in other parts of the country. So, it’s really a tale of two economies.”
Further sealing the deal is what she describes in her book as a “negative feedback loop from hell,” where states that are suffering with large debt overhangs and dwindling tax revenues don’t have the money to pay or invest in things like infrastructure, education, and public safety. As those services begin to deteriorate overtime, states will be forced to raise taxes, which only reinforces the decline.
“If you’re buried in debt, all you’re doing is paying off that debt and you’re not investing.” For example, “If you think about California, it’s not just the debt that they took on from their municipal debt, it’s the debt they took on from underfunding their pensions; and both of those types of debt, the municipal debt and the pension debt, have the constitutional backing of taxpayers. So, in an environment when California should be doing everything it can to keep businesses, to attract jobs, what does it do? It raises taxes and drives more businesses and more jobs out of the state. So, they are in an impossible situation.”
To hear the rest of this interview airing for subscribers Thursday, click here for details.
To buy her book on Amazon, click here.
