Dubai is a small place but a large metaphor.
By Daniel at 30 November, 2009, 9:54 pm
Global financial connectivity means that there are no islands of instability or oases of stability in the world, either quarantined or barricaded from the world of unserviceable debt and voracious fiat money.
The erupting volcanoes, big and small are all connected. Global economic tectonic movements are leading to an approaching collision between the plates of economic coercion and financial deceit and economic liberty and financial integrity.
As these plates grind one must end up subducting the other. The visible manifestations of this unseen global clash of Big Government versus free markets, fiat money versus real assets, debt versus wealth are early indicators that the global financial and economic terrain that has prevailed for the past 20 odd years is being reordered.
Dubai and California, Iceland and Ireland: same deceits, same pathologies, same tropes….. same outcomes because they are merely the manifold expressions of the same phenomenon, which is debt that cannot earn its cost of capital and therefore cannot be redeemed.
Such debt consumes wealth, it does not generate it and it keeps consuming wealth until all that is left is a blighted, sere, financial desert.
Dubai reminded us that:
1. Bankers continued to make bad loans and invest in bubbles in 2008.
2. Many billions of bad loans with maturity dates in 2010, 2011 and 2012 are sitting on countries banks and corporation’s balance sheets, waiting for a default.
3. We don’t know when and where they will show up in the news.
So from the perspectives of markets seeking an excuse to sell off in the short term, and long term economic health, as well as governments reaching the end of their ability to inflate and support markets, extreme causion is warranted from equity investors at this time. What Dubai showed us, that the US CRE crisis, will have a large effect on markets, relative to the size of Dubai’s problem. If Dubai is a snap, US CRE is a boom.
No comments yet.