Forbes Warns Investors to Avoid 11 States Labeled as Financial "Death Spirals"
30 replies, posted
[quote=William Baldwin, Forbes Staff]Do You Live in a Death Spiral State?
[I]Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.[/I]
Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.
[B]Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii.[/B]
If your career takes you to Los Angeles or Chicago, don’t buy a house. Rent.
If you have money in municipal bonds, clean up the portfolio. Sell holdings from the sick states and reinvest where you’re less likely to get clipped. Nebraska and Virginia are unlikely to give their bondholders a Greek haircut. California and New York are comparatively risky.
[B]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.[/B]
Let us give those takers the benefit of our sympathy and assume that every single one of them is a deserving soul. This person is either genuinely needy or a dedicated public servant or the recipient of a well-earned pension.
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.
Let’s say you are a software entrepreneur with 100 on your payroll. If you stay in San Francisco, your crew will support 139 takers. In Texas, they would support only 82. Austin looks very attractive.
Ranked on the taker/maker ratio, our 11 death spiral states range from New Mexico, with 1.53 takers for every maker, down to Ohio, with a 1-to-1 ratio.
The taker count is the number of state and local government workers plus the number of people on Medicaid plus 1 for each $100,000 of unfunded pension liabilities. Sources: the Bureau of Labor Statistics, the Kaiser Commission on Medicaid and a study of state worker pensions done in 2009 by two academics, Joshua Rauh and Rovert Novy-Marx. Professor Rauh estimates that the shortage in pension funding is on average a third higher today.
[B]The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co.[/B], a money manager known for its measures of risk in insurance company portfolios.[URL="http://conning.com/aboutconning/whitepapers.aspx?id=7459"]Conning’s analysis [/URL]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.
Conning rates North Dakota the safest state to lend money to, Connecticut the most hazardous. 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.
It’s easy to see how California got on our list. It has pampered a large army of civil servants while using every imaginable trick to chase private-sector jobs away, the latest being a quixotic scheme to reduce the globe’s atmospheric carbon. A [URL="http://www.city-journal.org/2012/22_4_california.html"]City Journal essay by Victor Davis Hanson[/URL] notes that the state spends $10 billion a year on entitlements for illegal aliens.
Illinois is especially known for its dishonesty, whether among officeholders (future license plate motto: Land of Corruption) or in the habit of under-accounting for promises to government employees. The Rauh study counted $66 billion in the till to cover pension obligations of $233 billion.
To lend money to California, Illinois or the other nine states perched on the precipice requires a leap of faith. So does buying a house in those locales. Don’t count on a property tax limit to protect your home’s value. If other taxes are high enough, there won’t be any buyers.[/quote]
[IMG]http://i.imgur.com/j3m4S.jpg[/IMG]
Credit to fox news for the colored map, which is undoubtedly superior to lists
There are videos in both sources below.
[URL="http://www.forbes.com/sites/baldwin/2012/11/25/do-you-live-in-a-death-spiral-state/"]Original Source[/URL] (Forbes)
[URL="http://foxnewsinsider.com/2012/11/28/are-you-living-in-a-death-spiral-state-and-if-so-what-should-you-do-about-it/"]Fox News[/URL] (D:)
I thought posting this might be interesting seeing as how Valve is opening up a studio in San Francisco. Not really surprised that Fox picked this one right up, but it definitely makes you curious about the amount of fraud and abuse among Social Security recipients, among other things.
New York and California death spiral? California being the major place for west coast shipping and NY being basically the storm trooper of the economy?
Good to see my state being called crap.
I might be mistaken, but aren't those states the ones with the most employee protection laws in place?
I can definitely see how Hawaii is a death spiral.
Illinois
Not surprised.
Obviously a man who has a previous article titled 'Eighteen Ways To Get Tax-Free Income' is clearly out there for the public good! :downs:
Fuck you Forbes. New York, yeah!
This reminds me of that prediction made by a writer for another business-centered news group, making similarly ominous claims about the future of several European countries.
Shit article.
Also, California is projected to have a budget surplus by around 2014-2015.
[QUOTE=Paul McCartney;38871839]I might be mistaken, but aren't those states the ones with the most employee protection laws in place?[/QUOTE]
Kentucky? I kinda doubt it tbh
Though NY is in a pretty shit state financially, as is Cali
[editline]18th December 2012[/editline]
[QUOTE=Melkor;38872156]
Also, California is projected to have a budget surplus by around 2014-2015.[/QUOTE]
Really? Based on what data? They have the 4th worst deficit in the country atm
Death spirals? That's a bit of a stretch.
I would call them irregularly-shaped murder pits.
[QUOTE=Timebomb575;38872178]
Really? Based on what data? They have the 4th worst deficit in the country atm[/QUOTE]
[url]http://sanfrancisco.cbslocal.com/2012/11/14/california-budget-deficit-shrinks-may-see-surplus-by-2014/[/url]
[url]http://goldrushcam.com/sierrasuntimes/index.php/news/mariposa-daily-news-2012/140-november/6913-california-legislative-analysts-office-2013-2014-budget-report-points-to-improving-conditions-in-the-state-[/url]
[QUOTE=Doctor Zedacon;38871837]Good to see my state being called crap.[/QUOTE]
I live here too, and I was totally expecting it. Hell, I would've wondered what the fuck if it wasn't on the list.
Lol Arizona is good to go!
[QUOTE=CubeManv2;38871826]New York and California death spiral? California being the major place for west coast shipping and NY being basically the storm trooper of the economy?[/QUOTE]
Exactly, California is the 8th largest economy in the world (Canada is 10th for reference)
[editline]17th December 2012[/editline]
[QUOTE=Paul McCartney;38871839]I might be mistaken, but aren't those states the ones with the most employee protection laws in place?[/QUOTE]
Conservatives often attack non-laissez faire policies as unaffordable, create huge debts, socialist, The Path to Greece™, etc
[QUOTE=Medevilae;38872490]Damn straight! Much more wise to invest in Nebraska, South Dakota, Wyoming, Idaho etc. than New York, California, etc.
A++ financial advice Forbes[/QUOTE]
I'm gonna set up shop in Montana. Maybe if I'm lucky, one of the 10 people who live up there will come in and buy something after a couple months.
As a resident of Illinois I can only agree with him.
When's the last time Illinois had a governor that[I] wasn't[/I] a criminal?
"Here is some arbitrary things going on in these states, which we arbitrarily assume to be causation for a state being actually fiscally poor or bad to invest in. Please pay attention to our study fox news!"
What's wrong with Illinois?
So this list is based on the idea that being employed by the government makes you an untrustworthy investment because you "take" more than you "give"? So my state being a center of military power and defense spending that's unlikely to ever change as well as having several centers for government research into things such as nuclear power are massive strikes against it. I'm severely questioning the logic behind this.
c-c-california?
[QUOTE=Pvt. Martin;38873619]What's wrong with Illinois?[/QUOTE]
As a resident, I can safely say this: A lot.
Forbes is hilariously sensationalist
[QUOTE=ASmellyOgre;38874028]So this list is based on the idea that being employed by the government makes you an untrustworthy investment because you "take" more than you "give"? So my state being a center of military power and defense spending that's unlikely to ever change as well as having several centers for government research into things such as nuclear power are massive strikes against it. I'm severely questioning the logic behind this.[/QUOTE]
Yeah, this article is bias, as soon as I saw the "takers and makers" bit I felt like I was reading it straight from Fox. Treating government contractors and employees as if they're a liability also signifies a conservative bias.
[QUOTE=Aman VII;38873572]When's the last time Illinois had a governor that[I] wasn't[/I] a criminal?[/QUOTE]
Governor Edgar. Chill dude, lives about 5 minutes away from me now, but that was a while ago.
Why wouldn't you invest in Alabama? Tax Tobacco and you got yourself a gold mine!
[QUOTE=ASmellyOgre;38874028]So this list is based on the idea that being employed by the government makes you an untrustworthy investment because you "take" more than you "give"? So my state being a center of military power and defense spending that's unlikely to ever change as well as having several centers for government research into things such as nuclear power are massive strikes against it. I'm severely questioning the logic behind this.[/QUOTE]
you're being paid by the government, which gets its money from taxes
your paycheck is assembled from the pieces taken out of the paychecks of your neighbors
if there are more government workers than private sector workers, the private sector workers have to be taxed more heavily to provide
[QUOTE=cccritical;38883584]you're being paid by the government, which gets its money from taxes
your paycheck is assembled from the pieces taken out of the paychecks of your neighbors
if there are more government workers than private sector workers, the private sector workers have to be taxed more heavily to provide[/QUOTE]
Right, and this article isn't placing the blame on the government workers. Remember, the states on the list aren't on the list for just having a lot of government employees.
Take a look at this picture:
[IMG]http://i.imgur.com/OYSuT.gif[/IMG]
Only four states from the above list are financial death spirals. Even though I'm not sure if the Forbes guy counted Federal employees working in the state, I think that a state needs a lot more than just a lot of government employees to be considered a death spiral. There is more going on here.
Also, keep in mind that this article is aimed at investors. I bolded this in the article:
[quote]Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers.[/quote]
It's saying that in death spiral states, employers and investors in the private sector can expect trouble ahead.
[editline]18th December 2012[/editline]
but I suppose the "Death Spiral" term is a bit melodramatic :v:
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