Dubai, Built on Debt and Sand

Well, the days are dwindling down. September. November. Tomorrow it will be December.

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

Last week, one of those pins took a stab at the bubbly bounce. While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?

Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, this patch of desert had set itself the goal of becoming a major financial and tourism center. And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building…

But the whole place was built on debt and sand. And as the debts mounted, the sands washed away. Ashes to ashes…and debts to dust…or something like that.

Nevertheless, as Ian Mathias reports in today’s 5-Minute Forecast, the Debacle in Dubai does not guarantee a crisis of “Lehman Bros. proportions”:

Will the ripples stirred up in Dubai turn to Tsunami waves elsewhere? “One cannot rule out as a tail risk,” reads an emergency report from Bank of America, “a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.”

And speaking of BoA, what of the banks? Wherever there is a debt crisis, there’s at least a couple bank CEOs sweating through their suits.

Dubai Debt Crisis

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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