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Call thank you for that now the federal government not the only one facing a possible rating downgrade.
The states taking their -- as well with Moody's -- these five states.
They are Maryland New Mexico Virginia Tennessee at South Carolina they are the -- danger of losing there triple -- ratings according to Moody's and Bob Grady joins us with more.
Knows a thing or -- about state finances because he's the chief economic advisor to governor Chris Christie.
-- New Jersey also managing director shy and not capital -- Bob good to see you again what should we.
Think about the states being in as much trouble as they may be -- Well I think it's related to Moody's analysis of the federal situation obviously.
Maryland and Virginia have a lot of federal employees.
So Moody's must be thinking that.
This'll affect there income tax revenue sales tax revenues corporate tax revenues etc.
I think the same thing perhaps true Mexico with a lot of federal labs and maybe even Tennessee with TVA's South Carolina has -- while another.
-- -- facilities I think some of those governors were a little angry because some of them for example governor Bob McDonnell of Virginia and that the new governor to hammer team is.
In New Mexico have actually done a good job addressing their budget situation so.
There -- a little bit angry I think it's somewhat imprecise remember these are states.
Being on watch from AAA and they're in a group a select group about fifteen states.
That have AAA other states which frankly.
Have had more trouble already like Illinois California etc.
authorities have been -- to prevent on La -- You don't think it does though Bob is it says to -- -- -- -- and to the people in Washington are in the midst of it that are in the -- these federal budget talks boy you better get your act together because it's not.
A just and this is a big deal and of itself the US's.
Just overall credit rating that's in jeopardy or the the idea federal workers getting all these types of things we've talked about over and over again prioritizing payments.
But the State's already -- in big trouble could be in in bigger trouble what is the fallout what does all of this third look like in this country in your mind if we don't get a deal.
The single biggest issue I mean.
I think there will be a deal obviously we've seen a lot of news about the gang of six proposal.
And the last couple days and there are a number of things to like in that.
Including getting rid of them AMT simplifying the tax code and lowering rates and having 500 billion of immediate cuts.
There's a lot of things not to like -- just yet spelled out there's a lot of work still to be done.
In particular we haven't done we haven't seen enough about how entitlements will be controlled.
The single most important thing the federal government can do is curb the growth of entitlements to turn the United States back into a pro growth economy.
It's the growth of entitlements that's preventing us from investing in research.
For -- and investing in infrastructure investing us and all these things that Obama says President Obama says he wants to invest and and it's also it's also the growth of entitlements that's really driving this you know -- and a half dollar a year deficit problems so.
I think there will be a deal it may well be there are some short term.
Between now and August 2 because I'm not sure this.
Three point seven trillion gang of six plan can be drafted into legislation in time in the next you know two weeks but.
But I think there will be deal and obviously we're watching the the stock market and you can see that.
I think it's that the thought that there is going to be deals kind of priced into the market at the moment so I guess if there isn't a deal that falls apart I think that'll be disastrous.
But the work is not finished on August 2 -- -- -- extended a few weeks it's not finished just by virtue of raising the debt ceiling.
The larger question again is controlling the growth of entitlements which are right gobbling up the federal budget -- one little and just as they are in the states.
In the states the problem we have in New Jersey and others had.
Is the growth of long term liabilities in the form of pension and health care obligations.
And and and the growth of Medicaid but that the federal level Medicaid and Medicare.
Have gone from that zero -- from you know 1% of GDP thirty years ago to write a percent of GDP today.
Left unchecked they're going to be 18% of GDP.
Those entitlements will be as much as the entire federal budget is today.
In seventy years so you know we've heard a lot about well the Republicans need to agree to tax increases but the fundamental thing.
That is driving the -- is a problem.
Is the unrestrained growth of entitlements big numbers we think about it Bob Grady always great to have you on them governor Christie's top economic advisor to they have to be in Denver.
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