Is NIMFOC a Word or an Acronym?

While media and experts try to divert sovereign debt issues to European PIGS, US states that make up NIMFOC are even worse off in terms of growing financial debts.

The pot and the kettle are at it again

The pot and the kettle are at it again

Is NIMFOC a Word or an acronym? Or how about FOMINC? Sure it doesn’t sound as identifiable as PIGS, but in the world of global finances and sovereign debt, there are very strong parallels between these two acronyms and enough article exposure will soon create the same type of over-exposed notoriety for NIMFOC as it refers to the-most-at-risk-of-default-states in the union: New Jersey, Illinois, Michigan, Florida, Ohio and California.

Last week sovereign debt panic swept over Europe as Portugal, Ireland, Greece, and Spain were catapulted infamously to top contenders for the impeding downfall of the Euro and consequently the Eurozone. In reality these countries are hardly worthy of so much attention in this respect. In truth, they are little more than handpicked proxies among the leveraged speculator community to kind of overshadow the larger problem of all sovereign debt around the globe.

And to be entirely fair, something Greek prime minister Papandreou is begging for, fairness, the credit default swaps on these smaller European satellite states are not even a ripple compared to the UK’s sovereign risk explosion or the US sovereign risk. With a downgrade warning from Moody’s to boot.

P.I.G.S. Portugal – Italy – Greece – Ireland

Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population of 45.5 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Saint Paddy admirers are similar to Kentucky in numbers, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily surpassed by the looming headache for Washington that’s coming from large US states such as California, New Jersey, Florida, Illinois, Ohio, and Michigan, just to name a few. And the only reason why for example Texas is not on this list, is that state’s ability to have a net energy balance, while all the other ones are large net importers of energy. All these 6 states are states with relatively big populations, very high rates of unemployment and they have already borrowed big to pay unemployment claims.

The Future Cost of Energy

Texas didn’t make the list because its unemployment rate has not risen high enough to reach the randomly defined cutoff: a state must register broad, U-6 underemployment above 15%, and currently Texas has only reached 13.7% on that measure. In addition, Texas’s total energy production nearly perfectly matches its total energy consumption.

Sure, Texas had to borrow more than a billion dollars so far to pay unemployment claims, thus technically bankrupting its unemployment trust fund. And one of the big reasons US states are under so much pressure, like their European counterparts since becoming part of the Eurozone, is that they cannot print currency.

Being able to produce oil and gas is the next best thing to printing currency. That’s why Texas doesn’t make the list.

In NIMFOC, each state has a population above 8 million people to way above 30 million. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three.

NIMFOC Economies

Let’s consider the overall predicament for residents of states like California, with its giant housing bust, Ohio and Michigan at the end of its automobile era or New Jersey in light of the financial sector’s demise and industrial production and distribution decreases. Not only have these states permanently lost key sectors that once drove their economies, but, residents in these states are blatantly over-exposed to structurally higher energy costs. All that while the prospect for wage growth in the United States is not only dim, we are already recording year over year wage decreases in real terms and a 1.9% inflation rate hike just in the last month along.

The culprit? Energy and food costs. These 6 states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.
While US wage growth in real terms has been stagnant for years, some say more than a decade, – something consumers tried to rectify by using home equity loans and other cheap credit facilities as income – higher oil prices have been particularly punishing to US states that are depending on the automobile like California, Florida, and North Carolina where highway and road systems dwarf public transportation. And even though it may be true that Ohio and California produce some oil and gas, the size of their populations largely outrank any production with a giant demand for electricity and gasoline.
If we realize that one out of eight Americans takes food stamps, a visit to automobile depending states like California, Florida and Ohio will abundantly reveal that the difference between a 15 dollar barrel of oil and an 80 dollar barrel, is financially crippling.

These six NIMFOC states of energy debt represent almost 1/3 of the total US population. And the days of unlimited borrowing by governments against future growth based on cheap energy is coming to an end. Washington can print up dollars and fund these endangered states for years, if it feels politically pressured to do so. But just as with the 70 million people in Portugal, Italy, Greece and Spain, the 100 million people in these six states are probably facing even higher levels of unemployment as austerity measures finally slam into their cashless State coffers, and reduce their ability to borrow.
I would be surprised if NIMFOC will not be an accredited acronym soon.

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  1. tommylee

    Oh, there's my “starting with a C and and ending on an A” in my comment on Belgium the other day or was the order the other way around? Anyway PIGS sounds better as an Acronym than NIMFOC so I guess we need to add a couple of letters and I don't think we have to wait that long to see some new letters on the horizon.

  2. publisher_sa

    Just look at states with larger populations and not enough energy on the supply side of their economy. And by the way what's wrong with NIMFOC. Kind of feels like poetic justice and rolls of the tongue easily. Of course Jeopardy it ain't.

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