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Wednesday, November 28, 2012

Obama's Economy Has America On A Death Spiral Trajectory

By Susan Duclos

The other day I pointed to the Forbes list of 11 states on a death spiral, states where is it suggested investors not invest, people should rent not buy, because those 11 states are at high risk of a fiscal tailspin. The Forbes writer, William Baldwin detailed the two criteria used to determine what states made the "death spiral" list.

Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector.


The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co., a money manager known for its measures of risk in insurance company portfolios. Conning’s analysis focuses more on dollars than body counts. Its formula downgrades states for large debts, an uncompetitive business climate, weak home prices and bad trends in employment.


A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking.

Keep that criteria in mind as you continue.

Tyler Durden over at Zerohedge highlights a presentation created by  Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania and provides what he terms as "the scariest chart in the entire presentation."

• For every 1.25 employed persons in the private sector, 1 person receives welfare assistance or works for the government.

 Credit agencies have already downgraded the U.S. credit ratings some twice now with warnings that they are considering downgrading the U.S. again.

Therefore using the criteria that Baldwin used to determine the list of 11 death spiral states--  takers versus makers, our recent credit downgrades and that the U.S. has large debts, an uncompetitive business climate, weak home prices and bad trends in employment, we are on the trajectory of becoming a  "death spiral" nation as a whole.

If the U.S. does not start creating an atmosphere to encourage employers to grow and create jobs, thereby creating more makers and less takers (because the takers will have an opportunity to work), limiting regulations to make it easier for businesses to expand, erasing our massive debt and deficit, cut our out of control spending, and reform our unsustainable entitlements, then it will not take long at all before we reach the end of that death spiral.

Baldwin showed the ramification of the 11 states that made the list:

But what happens when these needy types outnumber the providers? Taxes get too high. Prosperous citizens decamp. Employers decamp. That just makes matters worse for the taxpayers left behind.

That is the trajectory America is now on.