Top 10 States make up 55 Percent of United States GDP. 6 of the top 10 States have Unemployment Rates over 10 Percent.
It should come as no surprise that the economic production of each state is not evenly divided. There are many variables including population, industrial base, and regional specialties. With this deep recession it is important to get an understanding of how things are divided in the United States. It is easy to get into the mode of thinking everything is evenly divided or the recession is being felt equally across state lines. It is not. Some states like California had historical housing bubbles that saw real estate prices in some areas triple in 10 years only to come crashing down. Other areas like Texas had minor real estate appreciation. In the United States 10 states make up 55 percent of all GDP. The U.S. in 2008 had a GDP of $14.16 trillion and these states produced $7.89 trillion of that amount.
Let us take a look at how this breaks down:
When we start narrowing down the big economic states, we can also look at their local dynamics to get a better understanding of why this recession has made it so difficult for jobs to be created. In fact, we have yet to see a month of positive job growth since the recession started back in December of 2007. The national official unemployment rate is 9.8 percent. Out of the top 10 states, 6 have unemployment rates over 10 percent:
Think of the local dynamics of a few of these states. California and Florida had enormous housing bubbles and the repercussion of a bursting bubble are still being dealt with. These states are still losing jobs since a large part of their industries revolved around the housing market. New York and New Jersey have big industries around the financial industry. Now that the stock market has recovered, certain institutions are taking in gigantic profits since some of their competitors collapsed while the government selectively decided to bailout a few chosen. But still, employment in these sectors do not come close to rivaling the peak of what we saw earlier in the decade.
The above data is important to focus on because these are the states that make up the bulk of GDP. With rampant state budget deficits many of these states are cutting spending but also raising taxes. Unlike the federal government that has access to the U.S. Treasury and Federal Reserve, states need to contend with balanced budgets. These states are grappling with these problems so their GDP surely in 2009 will be lower than what was shown in 2008. If tax collections are any sign, the contraction will be rather severe.
If you boil the data down further, the top 5 states make up 40 percent of GDP. In a way, this is similar to the too big to fail banks. Sure, the U.S. has some 8,000+ banks that are insured by the FDIC but approximately 100 hold over 70 percent of all assets. If there are problems in these big states, will smaller states carry the slack in GDP?
Many of the smaller states are also contending with higher unemployment. The economy is interconnected and many of these states export goods to higher populated regions. If people stop spending and buying these goods, it will also hurt them. Ask GM or Chrysler what happens when people stop buying your goods.
Looking at the list of the top 10 and four of the states had economies that benefited enormously by the housing bubble; California, New York, Florida, and New Jersey. Other states also saw benefits from the housing bubble but nothing to the level of these states. You would have to look at Nevada and Arizona but these two states do not make it to the list.
So why look at these states? These are indicators of economic growth. If these states can show that they can grow without the housing bubble, then we might begin seeing a recovery. But instead, the government and Wall Street have decided to revive (or try) the housing bubble. Giving away an $8,000 tax credit to potential home buyers, the Federal Reserve buying over a trillion in mortgage backed securities to keep interest rates low, and allowing banks to keep toxic assets hidden for as long as they like. That is effectively the strategy. The hope is that somehow, people go back to spending all their money on housing and cars again. I’m not sure if that is going to happen because job growth is now nowhere to be found. What did happen for their trust in a banking sector that largely led us into this crisis is that more and more money is now concentrated in fewer and fewer hands. If anything the government is looking more and more like a kleptocracy. 27 million unemployed and underemployed are wondering where that $13 trillion in bailouts and backstops has gone? Clearly it hasn’t gone to create jobs.
Credit Card Companies Evolving Revenue Streams: Penalty for Paying on Time, 79.9% Annual Fee, Rising Charge Offs. The New Credit Card Revenue Streams.
The love hate relationship with credit cards for many Americans is probably leaning more in the hate stage at the moment. Americans have over $2 trillion in revolving debt - $1 trillion of that is plastic. The average American has come to rely on credit cards as a form of supplemental income, like retirees come to rely on Social Security. You would assume with the Federal Reserve flooding banks with easy money that credit card terms would ease up on consumers. They have not. If anything, terms have gotten more onerous in the last year. Credit card companies are battling with increasing default rates and trying to figure out how to maximize profits. As it turns out, they now have to cannibalize their good customers for their horrid lending practices during the debt bubble.
Take for example a report that NBC San Diego did. They found a credit card that was offering a 79.9% annual rate. Not bad enough? They also charge an annual fee:
Source: The Consumerist
Even the recent historic equities rally is in the 60 percent range. Yet these are common tactics. Some more troubling trends are going after customers that pay their bills on time:
“(USA Today) You floss regularly, yield to oncoming traffic and use your credit cards judiciously, dutifully paying off your balance every month.
You may believe that your exemplary behavior shields you from unexpected credit card fees. Sadly, that is no longer the case.
Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99. The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected.”
To show you how rampant this is, take a look at changes customers are seeing to their credit cards over the last few months even though the Fed and U.S. Treasury have rescued many of these companies:
Much of this is coming in a hurry trying to beat the 2010 new credit card legislation that will make it harder for credit card companies to milk consumers like nationwide loan sharks. At this point, they can’t squeeze blood out of a turnip or break kneecaps so they are now going after good paying customers since it would seem they are the only folks with money left. Even if you pay off your balance every month, you can expect some credit card companies to start charging an annual fee just for having the account. I would imagine that many accounts that have been open with no usage will also be shut down or have their lines decreased. This has occurred personally to me and I can verify the rate increases as well (nothing like 79.9% however).
So why is this happening right now aside from the legislation? Credit card companies are bleeding money. Let us look at Capital One and Discover:
The current net charge off rate for Capital One is 9.24%. An astounding number that puts it into a historical level. This is up from the 6.1% of last year. A 30 percent increase in charge offs will hurt your bottom line. The average American is dealing with the realities of the recession and many have simply stopped paying. Others have gone through bankruptcy and credit card debt is wiped away during bankruptcy.
Discover is also seeing a similar trend:
I think you get an understanding of why credit card companies are starting to look at “innovative” ways to raise revenue. So much for asking “what’s in your wallet?”
Yet why are Americans having such a hard time paying their debts? In a few words, people have less money. For the first time in 60 years has disposable income fallen on a year over year basis into negative territory:
Now think of all the recession since the 1950s. Not once did we see a negative year, until now that is. So with the deep recession, many are unable to keep the debt musical chairs going any longer. The trend of paying one credit card with another is coming to an end. How many 0 percent 12 month balance transfer offers have you seen in 2009? I used to get about 5 of these a week during the debt boom. Now? Zero.
This isn’t just anecdotal. The credit card industry has yanked over 10 million credit cards from the market and overall revolving debt is declining:
The trouble here is that revolving debt has fallen while disposable income has also fallen. Since Americans have relied on credit cards so heavily, this is being felt in profound ways. The credit card companies are getting a chance to remedy their balance sheets on the back of consumers. The U.S. Treasury and Federal Reserve have extended what seems to be unlimited life lines to these companies, paid by the taxpayers, yet these companies are doing nothing to help the overall average American.
At a certain point people will wake up and realize that there is a war going on in our country in the financial world. A battle that threatens the financial security of millions. In fact, it may be the biggest battle we face. Yet many Americans seem okay with this or have become apathetic to the new financial serfdom. Why take to the streets for a few million bonus when we have trillions of dollars being yanked by our own government and Wall Street? We need to channel our energy to where the real money is at. Wall Street and the government are all too happy to slap a few hands with mid-level players while the top rung keeps on sucking the American taxpayer dry.
