"Economy of two worlds" predicted as some states flounder under economic strain

(CBS News) In 2008, Meredith Whitney predicted the banking crisis. Now she says there is another huge threat to the economy: a financial meltdown in state and local governments.

Whitney predicted on "CBS This Morning" that there's going to be an "economy of two worlds" in the U.S. She said, "There's going to be incredible opportunity in some parts of the country and real pain in other parts of the country."

Whitney's new book is called "The Fate of the States: The New Geography of American Prosperity." According to information by the credit rating agency Moody's, cited in Whitney's book, state and local governments owe more than $6 trillion, with an average of $16,600 per person owed. Connecticut, Massachusetts, Hawaii, New Jersey and New York have the highest debt per person.

Whitney said on "CTM," this subject affects everyone on a personal level. She explained the state and local government economy affects a number of things, from how many police are on a beat to schools' student-teacher ratios to library hours and retiree benefits.

In terms of the overall country, the national economy is growing at about 2 percent, but in some states, the economy may be growing at 8 percent or higher. In Whitney's book, "CTM" co-host Norah O'Donnell noted, those states with booming economies tend to be supporting the rest. States such as Texas and Louisiana are of particular note: "Texas, also because of the population density, is very much the holy grail of the U.S. economy right now," Whitney said. "So it has an energy boom, but it also has very pro-business, low-tax policies that are attracting a lot of businesses, not just businesses looking for cheap energy, but tech companies that are building new facilities in Texas at the ease of operation. Louisiana, a state very much hurt by 2005 Hurricane Katrina, from 2008 to 2011 grew its GDP by 16 percent. So it's all the way up. These flyover states that people didn't really pay attention to over the last 10, 15 years."

So how can average investors use this information to their advantage? CBS News contributor and analyst Mellody Hobson, president of Ariel Investments, offered some tips in the same segment. For all that, and more with Whitney, watch the full segment in the video above.

  • Amanda Cochran

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