Ay, ay Dubai...
I mentioned in previous posts that some countries would be more vulnerable to the current economic climate than others. Some contributing factors:
Strong investment in property
“Thriving” financial markets
… and it goes without saying but I will say it anyway, strong input from economic, financial and “strategy” “technicians” educated in the United Kingdom and/or the USA
Dubai ticks all the boxes above and it is without surprise that is going bust pretty soon, an Icelandic Middle East equivalent. It is still surprising to hear some Anglo–Saxon politicians statements on the world economy recovery when they are no more than wishful thinking. To this date no change whatsoever has been made in the financial processes that led to this state of affairs. Deals are still being dealt with the same models, derivatives are still being derived, and exoticisms are still being “exoticized” using the same flawed formulae and methods.
Also surprising is the facts that Anglo–Saxon banks are now posting profits and paying bonuses!!! How can this be possible after more than $1 trillion has been given away to that market sector? Or have the banks accounting methods been Enronized?
Everyone is aware of the lack of investment on businesses in the current financial context. Banks use the excuse, and look very wise and full of public support, that they do not want to take risks in the same fashion they did before. The fact is, even with quantitative easing and State subsidies, banks are still posting losses on a daily basis with deals that were made years ago now maturing at bargain basement prices. So they literally have no cash to lend, there is no cash available in the financial markets, the USA and UK are slowly becoming a Zimbabwe style economy.
So… ay, ay Dubai is another nail in the coffin of the Global Market Paradise. The investors in the busted “World” (how appropriate) and "Palmyra" are now left reeling but most of them are the bottom of this pyramid scheme that was slowly built in the last 30 years. Profits on the above developments were already taken 5 to 8 years ago, even before the first bucket of concrete was sent to the middle of the Persian Gulf.
It is once again up to the Governments to pick up the pieces. In the case of Dubai they have one simple choice… sell oil at higher prices to cover the losses. This is not going to help the Western World… at all. The USA will have to come and “help”… again but this time with dollars printed in the backyard… and Dubai could become easily the 52nd State of the USA in the next couple of years. Either that or the world will have to pay $30 a gallon for gas in the next 6 months. Tough choices!