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Quick Take: States Are in Trouble, but Illinois Won't Drop Dead Soon

NEW YORK ( TheStreet) -- TheStreet's Gregg Greenberg met with banking analyst Meredith Whitney, author of "Fate of the States" to discuss the possibility the state of Illinois could declare bankruptcy.

Conversation about Illinois going bust appears to be gaining steam, especially after the state was downgraded by both Moody's and Fitch.

Whitney doesn't believe President Obama will be there to save his home state. "Too many cities are in a similar instance. The problem is too large to just pick one," she added.

Whitney observed that states have a lot of flexibility in ways to avoid bankruptcy, which usually result in cutting revenue to the localities. In turn, this leads to lower spending on basic services, such as public safety and education.

The Obama Administration made an attempt with the American Reinvestment and Recovery Act, but the states mainly plugged budget holes with the funds they received instead of creating jobs. Whitney believes it's not just one state that's in trouble, but many, although she doesn't see any going bankrupt soon.

The real problem, she says, is the economy is not fixed and the best way to fix it is to create jobs. If more people were working, the financial tension would decrease significantly.

She added that states need to "educate, retrain and build out an infrastructure" to see stronger job growth, and thus restart the economy.

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Rocco Pendola's Weekly Options Newsletter. Focuses on short- to intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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