While all the investing world seems to be utterly fixated on the outcome of Greece’s solvency woes, perhaps we need to step back and put this into perspective.
Portugal, Ireland, Italy Greece and Spain are in varied degrees of difficulty; but how significant are the PIIGS’ debts to the world’s economy? (If they require a workout, perhaps they can what we do. Give them lower rates and an extended term and/or a cramdown to their lenders).
In contrast, consider the distressed United States: How do our own economic “pigs” measure up? In terms of economic importance relative to the world, aren’t the bigger US States that are in deep distress more important (GDP sizewise)?
Consider the size of the budget issues and debt load in dollar and percentage terms for just these six states relative to their European cousins:
You Can’t Put Lipstick on These PIGS:
California
Budget gap (as a % of the total budget): 22%
Gap: $22.2 billionNew York
Budget gap (as a % of the total budget): 9.8%
Gap: $5.5 billionFlorida
Budget gap (as a % of the total budget): 19.9%
Gap: $5.1 billionNew Jersey
Budget gap (as a % of the total budget): 7.7%
Gap: $2.5 billionArizona
Budget gap (as a % of the total budget): 19.9%
Gap: $2 billionNevada
Budget gap (as a % of the total budget): 16%
Gap: $1.2 billionAll data for fiscal year 2008
Source Businessweek
All by itself, the insolvent nation-state of California is the 8th largest economy in the world. Its the size of France. According to the CIA Factbook, Greece is number 34. That is a lot of hyperventilating about a relatively small impact to global GDP. Italy is 11, Spain is 13, Portugal is 50, and Ireland is 56.
Additionally, in the US, we have 43 of the 50 states in some form of financial distress.
Perhaps the solution to California’s woes is for Arnold (who is from Austria) to have California join the EU. Then, they might qualify for a bailout from Germany . . .
>
click for larger graphic
courtesy of the WSJ
>
Previously:
Countries’ GDP vs US States (January 2007)
http://www.ritholtz.com/blog/2007/01/countries-gdp-as-us-states/
Category: Bailouts, Economy, Markets
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
California joins the EU to qualify for a bailout from Germany!
I love that!
Comments from the PM of Greece now hitting the tape: “Greece has will to implement stability plan,” Ready to take every step to cut deficit,” “Greece has taken further steps to cut deficit,” “Strong ties between France and Germany,” (he had to say that as their rich uncle and aunt come to their rescue), “Ready to take necessary measures to cut deficit by 4% in 2010,” “Ready to take extra measures to make sure plan guaranteed.”
Some states are going to need major financial rescues from DC, if the banks need additional funds at the same time who gets it or does the US go farther into the red to rescue both? Crunch time, no easy answer.
Hyperinflation is the ultimate solution.
“Then they might qualify for a bailout from Germany”
Ok, that was a good little chuckle to start the day.
The other question is net, net–states vs. Feds. How many of these insolvent states send more than they receive to the Feds, or vice versa?
Western civilization appears to be crumbling before our very eyes.
It does seem as though Wall Street has been ignoring the “state debt” problems, and hyperventilating on “sovereign debt” problems.
In case you haven’t done the math (Barry has), we can’t afford to bailout all the troubled states.
If there are further financial collapses, citizens will not put up with further bailouts.
When people get fed up with lower services, increased state taxes, fed up with the Washington lobbyist and their “Spend” party and “NO” party, they will be tempted to anarchy.
These are pivotal times, we must be careful which way we pivot!
Dave Rosenberg (formerly of Merrill, now at Gluskin Sheff) has proposed the US set up a trillion dollar, interest free loan fund for individual states.
There has never been a state BK even during the first great depression, be tough to imagine the US saying no even to a R state
Can the Feds bailout a US state without passing legislation? I imagine that would be a very toxic vote in a solid majority of home congressional districts.
If Californians ever muster the political will to overcome minority rule here, we can easily fix our budget crisis. The LA Times’ Michael Hiltzik had an excellent column last year on Prop 13. He pointed out that Prop 13 was the biggest tax increase on the middle class in California history:
Before Prop 13, homeowners paid 40% of state property taxes, corporations paid 47%
After Prop 13, homeowners paid 56% of state property taxes, corporations paid 30%
The average homeowner pays $2.06/sq ft in property tax
Disneyland pays $0.05/sq ft in property tax
It’s bad for new businesses too, because it disadvantages anyone who starts a new business (you’re assessed at the current tax rate, while your competitors are assessed at the old tax rate)
Neiman-Marcus in San Francisco’s Union Square pays $761/sq ft in property tax
Macy’s in SF’s Union Square–literally next door–pays less than half of what Neiman Marcus pays
California has plenty of resources, and we’d be fine if we taxed everyone fairly. We simply made the horrific choice to be governed by our GOP minority.
http://articles.latimes.com/2009/jul/13/business/fi-hiltzik13
what does Ber”Tank”E have to say about it?
This thread fully exposes the elephant in the room. Remember, they said subprime was only a small part of the mortgage market too, so any size sovereign debt implosion is scary. My rough calculation estimates that we have some $50 Trillion USD in TOO MUCH CREDIT globally. The totally unpredictable aspect is how and when it all implodes…its like trying to predict where a levee will break.
One thing I do know…this is not the time to be in stocks, priced using 10 year normalized earnings, at 1929 levels.
BR, how about a sequel to Bailout Nation…Bailout World?
Great read. Splitting hairs here: Jim Puplava says CA is the 7th largest economy, you are and I was a former NYer, he lives there.
Like to see the mother of all PIGS, that would be our Federal off balance debt and our debt as a percentage of GDP.
http://www.usdebtclock.org
I wasn’t aware we were investing in states and countries. Can someone please tell me what the ticker symbols are for Portugal and Michigan? (jokes welcome) I thought we were investing in things like Apple, Wal-Mart, IBM, Proctor & Gamble, Intel, Bunge, RIMM, Disney, etc. — all of which will make a crap load of money this year despite being based in their respective states and despite relatively high unemployment and tight credit. (By the way, that was a nice straw-man yesterday Barry. “Was that it? Are things hunky dory again?” I’m not aware of anyone saying things are hunky dory due to Tuesday’s rally or a Greece workout. If you can find someone notable who is, please post it.)
The Greek sovereign debt problem is well contained.
Greece: You are the weakest link.
Franklin, no matter how fair or equal taxes are, you can count on the money collected to be thrown in the wind, stolen, wasted, and the rest pissed away. On a State and Federal level the only solution is a Constitutional Convention and a clean sheet of paper. Create a small, bare bones State and Federal government, and then pull the financial plug on the old ones. The corruption and sense of entitlement run too deep to offer any hope of reform of the current government establishments.
Nancy Pelosi is living proof of my argument.
These are all problems of culture. Our “elite” set the tone and the Sheeple merely follow. I hate to sound fatalistic, but………..
In addition to the budget deficit cited above, the state of California also has $52 B in healthcare liabilities for retirees.
Mannwich,
Not sure what you mean by the “elite”. Politicians spend money on two groups: (a) those that can make, shall we say, large “campaign contributions”, and (b) those who are well organized, like the UAW in Michigan, or the teachers unions in California.
silly argument-
the United States is a country whereas the EU is a loose affiliation w/ a common currency-
Germany helping Greece is akin to the USA bailing out a Latin American country not California or Florida
@DL: Any significantly monied group and/or their enablers (politicians) = “elite” (am using that word a bit sarcastically as well), so the few powerful unions that are left ARE indeed in that group.
Why isn’t Illinois on that list? They belong just under California and are papering over huge shortfalls in the retirement system.
Greece can’t ‘print’ it’s way out.
The United States can.
@BR: Great post. The ultimate elephant in the room is the fiscal crisis for governments in the US ( states, counties, municipalities).
The annual budget deficit is merely the tip of the iceberg. When you look at bond/debt and unfunded/underfunded obligations (pensions/benefits) it’s freaking Frankensteinish.
Congress is under enormous pressure to help. Ergo another “jobs stimulus” bill that funnels money to the states.
Just like Greece, these govs have no will to rein in budgets, just friends in the Roman/US Senate. They all jet around pretending they’re above the fray and that all will be well.
And no one, including the MSM, wants to dampen the supposed recovery with an open dialog on this.
@RangerTurtle
“….citizens will not put up with further bailouts.”
Wanna bet?
What millions do you know who will take up arms and if they did how successful do you think they would be?
Bingo flip. @11:16 a.m.
Recessions are beneficial in weeding out the dead wood and increasing the efficiency of the economy. This bodes true for governments as well as the private sector. State and local governments should be forced to restructure and downsize just as corporations and small businesses must. In the long run, states and local governments will be better run if the feds do not bail them out further.
From the Guardian (Larry Elliot, The Observer):
” Nouriel Roubini, economics professor at the Stern School of Business at New York university, said in Davos last month: “If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster.” ”
” Since the modern Greek state was founded in 1830, the country has, on average, been in sovereign default every other year and had been through five big defaults in less than 200 years.”
” For the Greek public last week, it barely mattered whether the harsh measures were coming from their own government, the commission, the fund or a mixture of all three. All they knew was that they did not fancy higher taxes on fuel, working longer to get their pensions and, if they were civil servants, taking a 10% pay cut.”
” Parsons says: “What will happen is that there will be the emergence of a strong bloc which will ensure that never again will countries be allowed to go off and do what they want. Instead, they will have to do as they are told. There will be a stripping-away of fiscal powers from those that don’t behave.” ”
http://www.guardian.co.uk/business/2010/feb/07/greece-fiscal-crisis-european-union-euro
Interesting comparison with U.S. states, as we see now, financial crisis will mean some loss of sovereignty of Greece towards the Eurobosses, Greece is becoming, kind of, a state of Eurozone.
In the graphic, we see that in 1999, Greece was already in very bad shape, whatever was done to remedy the financial problem didn’t work at all. So why would anything work now, as Greece in sinking/crashing to the abyss.
The Greece PM sounds like California’s governor in the movie 2012, reassuring everyone just before the final armageddon.
The greeks are quite a fierce people, lots of violence in that country’s recent and ancient history. Anarchy could be quite a problem there.
Lets hope Germany really has some robust growth now to sustain heavier financial measures.
I don’t think France can’t do much, as they have a big problem of youth unemployment (25%), with overall unemployment rate going towards 11%. France needs its funds to finance their considerable safety net/system of redistribution.
@jjay
I disagree that “waste” is the problem, primarily because “waste” is always defined differently by different people. Some people think that having a large military is “waste.” Others think that public universities are “waste.” I almost never drive my car (I run or bike unless it’s >10 mi), so perhaps public roads are a “waste” to me.
That said, I agree that we need a state Constitutional Convention. Regardless of what solution people believe is the answer–taxes, cuts, “waste”–we can all agree that it’s impossible to govern effectively under a system of minority rule.
Dave Rosenberg (formerly of Merrill, now at Gluskin Sheff) has proposed the US set up a trillion dollar, interest free loan fund for individual states.
This is all a giant circle jerk. The Fed gives money to the big banks for free (they pay postage & handling) then the banks lend the money to the US for a few percent risk free then the US gives it back to the banks, insurance and auto companies, GSEs and next the states. This increases the US deficit so they must borrow more free money from the big banks. The taxpayers end up getting a pearl necklace.
A couple points — these states have to balance their budgets. Imagine how much worse they’d be if they hadn’t received funding from the feds.
All of these states except AZ send a lot more money to the feds than they get in return. Arnold has already complained about that.
The top states for getting way more from the feds than they send?
Mississippi, New Mexico, Louisiana, Alaska, West Virginia, North Dakota, Alabama, Virginia, Kentucky,
South Dakota.
Seems to be a pattern there, hmmm….
At some point this financial recklessness is going to send interest rates soaring and we’ll be treated to testimony from BB echoing Greensputum’s how it was “unimaginable”. Can we go to one monetary extreme without rebounding to another?
This is silly. Govt budgets always look bad in recessions, much less BIG recession like this one. Recovery solves this problem very quickly.
From 2002 to 2006 annual Federal Tax receipts grew >$600B. So its pretty clear 3 years from now, with an OK recovery, Fed Tax receipts will be ~$1T higher. Deficit solved. If you cut some spending into the meat of the recovery… we’ll have surpluses.
California probably looks similar.
Lets not go “crazy” over the obvious… debts and deficits look bad in the trough of recessions. Duh! Then we recover.
The EMU was only agreed to with non-Bailout Nation clauses in the treaty, which makes Greece the example to drive the larger and bigger issue: withough fiscal, inter-nation transfer and political union at the European level, can the Euro survive?
It’s basically a pegged currency without all of the flexibility the US Nation and US States have.
Greece is small enough to be bailed out, but bailing out Spain, Ireland, Portugal and perhaps Italy is likely to big a task.
And the Europeans don’t have a mechanism or flexibility to fix things. Perhaps they will change their treaty (someday), or find some other mechanism, but they don’t appear to have an answer right now, which makes the Greek problem look like a contagion, or glycerin.
Having said that, Barry is right to make the comarative analysis to the US state problem these are not the only “elephants in the room” – the overarching problem is the accumulation of total debts US, states, personal, etc, etc, with the unfunded entitlement liabiliies and other off budget items we have had our heads in the sand for 10-30 years now (depending on how you view it), and the consequences do not have a good ending. The political class still doesn’t seem to get it.
Agreed, cognos. That was the mistake FDR made in 1936/7. The economy was in recovery and the elites said we needed to get back to “fiscal responsibility” by balancing the budget. FDR actually did balance the budget, and guess what? The Roosevelt Recession of 1937 sank the economy once again. It wasn’t until the massive stimulus of World War II (And that’s what a war is…a massive stimulus program. The government “hires” millions of men through the Army, and it spends massive amounts of cash on arms and supplies) that the Depression truly ended.
It always makes me chuckle when some say that the New Deal didn’t end the Depression, WWII did, so Keynes was wrong. Their own argument proves that massive government economic intervention ends Depressions, and Keynes was right.
Thanks Barry!!!
Always appreciate your perspective…
And then we dump P51s into the ocean. Seems pretty pointless but we are on the same page. It the classic setup — 1) the world is demand poor (savings!) and 2) prices and wages are inflexible in a downward direction (Keynes was a genius, and a great speculator).
The big worry is CPI does not get back on an upward tact (peaked in July 2008)… but Fed seems on top of this, and 25 bps LIBOR will work eventually. Banking looks ready to be sorted and restart credit flow.
love it! the post and the comments
hey cognos where are all these jobs coming from to get to your trillion tax receipt number in a few years? we lost 8.5 million jobs and needed 1.5-2 million just to keep up with population growth.
“Banking looks ready to be sorted and restart credit flow.”
hahahahahahaha- well I guess they can force people to take out loans- at gunpoint-
let’s call it armed indebtedness- as opposed to armed robbery
you’re always good for a laugh cognos-
and this-
“debts and deficits look bad in the trough of recessions. Duh! Then we recover.”
of course – just like that-
and using that excellent logic- once we recover- at the height of expansion- then there is recession- Duh!
because one certainly presages the other- of course!
Apples to Oranges, Barry –
You list CA deficit as a % of state *budget*, but then use GDP to note that CA is “bigger than Greece”.
Problem is, in terms of GDP, CA (with a gross state product of nearly$2 trillion) is running a deficit of just over 1%, whereas Greece’s deficit-to-GDP ratio of ~13% is a full order of magnitude larger.
(Interestingly, the U.S. is running close to Greece in terms of that metric).
The people of France and Germany should be asking themselves who’s going to bail them out from the mess their governments are getting themselves into by trying to bail out Greece. Its the French and Germans who will end up paying a higher tax for what I expect will be a failed effort. Greece is too heavily loaded with Unions that don’t want to budge when it comes to pay cuts or cuts in benefits. As for the US, Marc Faber says were doomed, due to the high amount of pension plans and guaranteed benefits to Unions. Its no different then what we are seeing in the European countries.
Marc Faber: http://foxmuldar-conservative-thinker.blogspot.com/2010/01/fabers-take-on-us-debt-were-all-doomed.html
Also, Ron Paul says that the US might actually be behind the bailout of Greece. We bailed foreign banks as part of the AIG bailout, and the Fed can buy foreign debt without our knowing it.
Ron Paul: http://dprogram.net/2010/02/10/video-ron-paul-i-wouldnt-be-surprised-if-the-fed-is-involved-in-the-greece-bailout/
Im here in Pa, and the snow keeps falling. We have at least 2 feet and it keeps falling. Were all Doomed!
[...] Barry Ritholtz gets a thumbs up for the most modest proposal of the day: Perhaps the solution to California’s woes is for Arnold (who is from Austria) to have California join the EU. Then, they might qualify for a bailout from Germany . . . [...]
@Ahab: one does… (exactly)…. presage the other
The time to worry about the downturn is when things look great. And when things look bleak, its the time to look for opportunity.
Not only is this wonderfully true (i.e. $$$) in financial markets. The fundamentals follows quite well. In the trough costs are low (labor, materials, rent) and competition is floundering and talent is working harder. This creates opportunity, profits, etc that then cause a reversal of the cycle.
Its just a tough trade… looking for the depression, armaggedon, etc. First… it may never come. People thought it would come in 1982. In 1992. In 2002. In 1984 SPX was at 150. Once the upside passes you by… you just cling more to the bad idea.
Second… even if you do call the “total collapse” trade… its very difficult to say what the right trade is. I love it when some of the naive institutional investment analyst I meet with says.. “Weimar Germany… we’re buying gold”. If you were a large insurance company or private family in 1936… I dont know that you would’ve ever got that gold out of Germany when the crisis hit. So “textbook price charts” really dont apply to those events. Hard to see the upside past the first 2 yr down leg.
Why world leaders are still allowing derivatives to potentially ruin millions of lives is beyond me, and all this for a quick billion for an already billionaire.
Can some alien please zap the shithole we call Earth.
@ewmayer: Good points. BR’s post is provocative, but a bit misleading.
I advise IT companies who do business with states and localities. It ain’t pretty, because these guys do have to tighten their belts in a downturn. Not so with the fed. As with any organization, state and local governments spend 65%+ on personnel-related overhead. They freese pay, force furloughs, freeze hiring, force paycuts, renegotiate union contracts (lots of brinkmanship!), and downsize pensions, etc. Again, not so with the fed. They also inflate their deficit figures to scare the public into realizing what needs to be done. Unfortunately, they also close libraries, fill potholes less frequently, increase classroom sizes, raise tuition to ridiculous levels at the various diploma mills, and so forth
.
I’ve always said that 90% of the good work of government is done by states and localities. Unfortunately, 75% of the money is in DC. The fed taxes too much; states and localities not enough. The fed has consumed most of the public’s tolerance for taxation with retirement incentives funded by regressive payroll taxes.
@franklin411
Any predictions about WWIII?
Who will be the new allies? Who will be the new axe forces?
cognos sounds eerily like the “old” Harry Wanger. I’m I the only one who notices this?
“Its just a tough trade… looking for the depression, armaggedon, etc.”
Not really, Cognos. All you need to look for at this point in time is the LACK of a V-shaped recovery which this nutty market has already priced in….
You also seem to be working from the assumption that the recession will be of normal duration as opposed to long and U-shaped per Roubini, et al.
That’s a dangerous assumption considering all the countries, states, and banks which are on life support.
@flipspiceland
Somehow you thought my post saying “anarchy” implied arms…
The Merriam definition below is what I had in mind:
1 a : absence of government b : a state of lawlessness or political disorder due to the absence of governmental authority c : a utopian society of individuals who enjoy complete freedom without government
If the states can’t provide enough police, and our Nat’l Guard are at war, the people will govern themselves. IS THIS LIKELY? NO, but it IS a possibility.
presage = warning of a future event-
so cognos you are confused- because a depression does not warn of recovery- nor does expansion warn of a recession or depression-
an economy can stay depressed- nothing says it has to recover- especially to previous levels-
and then this-
“Its just a tough trade… looking for the depression, armaggedon, etc. First… it may never come.”
can be said thus-
“Its just a tough trade… looking for recovery . . .because it may never come.”
[...] woes is for Arnold Schwarzenegger (who is from Austria) to join the EU,” Barry Ritholtz writes. “Then, they might qualify for a bailout from [...]
Do these folks look like their ready to tighten their belts? I don’t think so.
http://www.businessinsider.com/greeks-take-to-the-streets-to-protest-fiscal-restraint-2010-2
Moral Hazard all over again. How can we evr expect Governments to eliminate Moral Hazard in the Private sector if we are now to see the same thing in the Public sector? Whatever happenned to fiscal responsibility. Sigh………………………
Greece needs to cut spending and increase tax revenues. Period. If it gets bailed out, where is the impetus ever to do so going to come from. Sometimes it takes a crisis to force the tough (Responsible?) decisions.
Moral Hazard all over again. How can we ever expect Governments to eliminate Moral Hazard in the Private sector if we are now to see the same thing in the Public sector? Whatever happenned to fiscal responsibility. Sigh………………………
Greece needs to cut spending and increase tax revenues. Period. If it gets bailed out, where is the impetus ever to do so going to come from. Sometimes it takes a crisis to force the tough (Responsible?) decisions.
There is aq certain justice in the fact that states, cities, towns, and other so-called government employers do not have enough money set aside for the pensions they have accrued.
And why shouldn’t this be so? 90% of the people who inhabit these grossly overpaid positions don’t deserve a quarter of what they have been paid, let alone the lavish retirements for doing practically nothing their entire lives, but getting their sponsors re-elected.
Fuck ‘em, every single one of ‘em.
@drey, ahab — Do you follow markets? A good personal portfolio is up 100% since the bottom and it was only down 30% into the bottom. Push risk on dips (Oct 08, Nov 08, Mar 09, Jul 09), trim on rallies.
You guys dont see the recovery? Leading indicators are up EVERY MONTH since April 09… GDP was 5.7% in Q4 ?!? (Is everyone taking crazy pills).
You guys are gonna be waiting for that “depression” trade… which isnt even worth much… for another 50 years.
The FT followed your lead:
“Arizona
Budget gap (as a % of the total budget): 19.9%
Gap: $2 billion”
$2B is this year (ending June 30, 2010. Next year (beginning July 1, 2010) is
closer to $4B.
Isn’t that cheerful?
[...] Ritholz over at The Big Picture has an excellent post on Greece’s debt woes vs. those of the United States: All by itself, the insolvent [...]
[...] Big Picture almost says something smart about Greece’s current debt crisis. Almost. In contrast, consider the distressed United States: How do our own economic “pigs” [...]
[...] http://www.ritholtz.com/blog/2010/02/insolvent-european-vs-american-states/ [...]
[...] Insolvent European vs. American states – Big Picture [...]