The Bitter Medicine for the United States
by Mad Hedge Fund Trader
On a map, it appears that the United States is made up of 50 states. The fiscal reality is that we have 20. Portugal’s, 15 Italy’s, 10 Irelands, 3 Greece’s, and 2 Spain’s.
In Q1, state and local GDP shrank by 3.8%, chopping growth at the national level by 0.5%, the sharpest drop since that last year from hell, 1981. States are shoveling money out of the economy nearly as fast as Obama is shoveling it in. During the bubble, the states thought incomes were higher than they really were, were richer than they really were, and bulked up on services as if the party would go on forever.
As a result, services grew faster than the economy for many years, especially when it came to building new prisons. Because of the ephemeral nature of property and stock gains, that movie now has to run in reverse, and state services have to shrink down to what they can afford.