SAN FRANCISCO — The United States is undergoing a “geographic sea change” where economic power is shifting from longtime coastal stronghold states still reeling from the housing bust and moving towards interior states with lower tax burdens. Only recently have the so-called “flyover” states like North Dakota, Indiana and Texas begun to experience an economic boom, having survived the Great Recession relatively unscathed.

This is the latest prediction from financial banking analyst Meredith Whitney in her first book, Fate of the States: The New Geography of American Prosperity. Whitney, chief executive officer of investment firm Meredith Whitney Advisory Group LLC, takes the reader on a quick journey of state and local government trends over the past 20 years right up through 2012.

Fate of the States, laden with numbers, percentages and wonky figures, provides a recap of how “states gone wild” find themselves in the fiscal mess they are in now due to years of “foolish government spending.”

“A number of states, both large and small, managed to ignore their reckless spending over most of the 2000s and then, handed extra money by the federal government, decided to use those funds to cover budget deficits instead of using it for its intended purpose: providing for residents. This was simply unprecedented,” she writes.

One of the biggest downfalls in the book is Whitney’s repeated attribution of favorable state tax policy and less strained budgets as the explanation of the economic boom in the central corridor likely to drive growth over the next few decades. However, there are a host of factors such as fracking, agriculture, and natural gas production boosting state economies that she fails to mention.

Unfunded pension systems are the debt bomb nobody’s talking about, she claims. Whitney says states have been “playing the equivalent of credit-card roulette with their pension funds,” only paying the minimum owed and hoping for large returns from the stock market. “In Vegas they call this problem gambling. In state capitals it’s everyday accounting,” she writes.

Pensions and retirement benefits are the key to fixing state and local finances, Whitney says. Once states chose to reform their pension plans, great fiscal health improvements will be seen.

“With not nearly enough money to go around, the impending war over public-employee pensions threatens to be one of the more vicious political debates this country has seen, pitting Americans against Americans, neighbor against neighbor,” she writes.

Whitney also suggests that states and municipalities should privatize and sell off or outsource as many assets as possible to raise badly needed money, improve infrastructure and create job growth. She argues privatization includes quick cash for governments and often the private sector does a better job of maintaining infrastructure and local services, which have become a drain on state budgets.

Whitney predicts more states will follow the lead of Indiana, Florida, Texas, Ohio and Virginia, which have been the most open to public-private partnerships and have the most conducive laws for privatization. “As states’ finances grow more strained, expect more states to venture down this path — so long as voters and public-employee unions don’t get in the way,” she writes. In the last chapter of the book, Whitney addresses her critics who were against her CBS 60 Minutes muni bond call in 2010 that there would be 50 to 100 “sizable defaults” worth hundreds of billions of dollars.

“For the record, I never said those 50 to 100 defaults would all happen in 2011, which was how my critics spun the story,” she writes. “[Steve] Kroft had not even asked me for a time frame. He wanted to tell the story of the state and local budget crisis, and what I told him was that the crisis would become a big deal — ‘something to worry about’ — within twelve months.”

As a result of her call, investors pulled $26 million out of the muni market over several months. Some market participants called her default call more damaging to the bond market than fraud activity because it ultimately eroded investors’ faith in municipal securities.

Despite her predictions, there were only five new defaults in 2012. And while the average number of defaults from 2008 through 2012 rose to 4.6 per year, they remain extremely infrequent, according to Moody’s Investors Services.

“Fate of the States” is published by Portfolio/Penguin (260 pages/$27.95).

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