Meredith Whitney pointed out that she was wearing red, white, and blue on stage at the Fortune Most Powerful Women conference on Wednesday, even though her message about the state of affairs in the U.S. is about as bleak as they come.

Whitney, CEO of the Meredith Whitney Advisory Group, sounded alarms about the increasing divide between the haves and the have-nots here in America – a situation that will almost certainly lead to more social unrest. When asked if we’ll become Europe, she concluded: “We already are Europe.”

The comparison can’t be made on a financial level, she admitted, but at the social level it’s similar. Some of the same issues that led to the Arab Spring movements and protests in Europe are becoming prevalent in the U.S. “It’s us against them on every level,” she said. “We have to raise the collective spirit in this country.”

Full transcript of Meredith Whitney’s talk at Fortune’s Most Powerful Women Summit

We’ve already seen examples of this, such as the tuition protests last year in Berkeley, Calif., the teacher protests and New Jersey, and now Occupy Wall Street.

Whitney says our basic social services like education and health care are at risk because of the dire financial straits at the state and municipal level – an issue she’s been highlighting for more than a year now. Her famous prediction on 60 Minutes that the U.S. would soon see “hundreds of defaults” at the local level has not come true yet, and she’s taken a significant amount of criticism from the bond market for broadcasting such dire predictions.

When asked if we would see defaults soon, Whitney dodged the question, instead focusing on the implications on taxes, social services, home prices and demographics. Because states rely heavily on the federal government for support, they are effectively being cut off as the spigot closes in order to solve deficit problems at the federal level.

State revenues trickle down to municipalities, which means individual and corporate residents of the hardest hit states will feel the pain. As certain states become more attractive with lower taxes or better social services, a shift in demographics will emerge.

While she carefully avoided the word “default,” Whitney clearly maintains her position that state and municipal finances are on the brink. “It’s a runaway train,” she said.

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