Tuesday, August 2, 2011

USA Double-Dip Recession Imminent? (Video) *Indicators & signs increasingly ominous*

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Signs of an imminent double-dip recession are increasing

State & Municipal Problems Ahead Meredith Whitney made news in December 2010 on CBS 60 Minutes by warning that upwards of 100 sizable municipal bond defaults would occur amounting to hundreds of billions of dollars in the next 5 years. In June 2011 she issued a fresh warning that state finances and debt were worse than estimated and reported. State and local government spending comprise 12% of the USA GDP, the economy, and as they reign in spending this will be the tipping point into a double-dip recession.

State Budget Cuts The federal stimulus and transfer payments to the states ceased at the end of June 2011. Many states will now and/or continue to make big cuts to spending, which will affect their economies negatively. Social services spending will continue to decrease and taxes will continue to increase to plug the gap in the budget deficits. Assistance to municipalities will continue decreasing. All this affects the USA macroeconomic environment negatively.

Increasing Risk of a Double-Dip The drastic pullback in state and local government spending is one of the signs of an increasing risk of a USA double-dip recession. This will continue to result in a cut-back in contracts and accelerate job losses in the private sector, as well as the public sector. Wall Street has laid off 50,000 in the past month and other sectors have and will cut jobs. Housing is already in a double-dip recession. Among Whitney's key points:
● U.S. economy undergoing a structural change that will shift its focus dramatically over the next 20 years
● Agriculture, manufacturing, and commodities will replace housing as growth engines of the U.S. economy
● Major economic changes will occur on a regional basis
● High unemployment in the coastal areas will persist as housing remains a drag on the economy
● "Sand states" like CA, FL, AZ, and NV accounted for 21% of U.S. GDP in 2010 and 20% of employment
● Strength has begun to shift from the coastal regions to the central region

Two USA Economies Meredith said, "You have two economies, the really rich and everyone else. The upper middle-class is going to be squeezed down to the middle, the more challenged consumer group. The really rich are spending. You see American Express doing really well, you see high luxury doing really well. You see the rest of Americans being really pinched and credit continues to be pulled out of the market. Credit is being pulled out of the market by the big banks. Credit is being supplied by the 'shadow lending industry' such as Capital One, Discover actually maintaining and growing loan growth. By and large the financial industry is shrinking dramatically."

Whitney One-on-One Discussing the fiscal health of states and municipalities as well as their vulnerability to the debt threat, with Meredith Whitney, Meredith Whitney Advisory Group founder/CEO.

About Meredith Whitney Meredith Whitney is the CEO of Meredith Whitney Advisory Group, LLC, a macro and strategy-driven investment research firm. Well followed for her core research, Ms. Whitney and her team also focus on a broad section of financials including large, small, and mid-size banks, brokers, independent commercial and consumer finance companies.

Prior to founding Meredith Whitney Advisory Group, Ms. Whitney was a Managing Director and Senior Financial Institutions Analyst for Oppenheimer & Co. Inc. Throughout her tenure at Oppenheimer, Meredith was most noted for her research on the ultimate decline in home prices, the future of the US mortgage industry, and the consumer lending market, including specific focus on the credit card industry. In 2007, she wrote prolifically on the threats surrounding the weighted influence of the rating agencies on regulatory capital determinants and the risks of the monoline insurers on financial institutions. In 2006, Ms. Whitney presented to the FDIC on the U.S. consumer and the risks in the sub-prime market.

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