Paul Krugman: Dubai or not Dubai — that is the question

Update:

Dubai World Unit Faces Default Test Monday With Bond Payment (Wall Street Journal):

DUBAI (Zawya Dow Jones)–Debt-laden Dubai World’s unit Jebel Ali Free Zone Authority, or Jafza, faces on Monday a coupon payment on a 7.5 billion U.A.E dirham ($2.04 billion) Islamic bond in the first key test of whether it will default.

Abu Dhabi to aid Dubai “case by case”: official (Reuters):

ABU DHABI (Reuters) – Abu Dhabi, capital of the United Arab Emirates and one of the world’s top oil exporters, will “pick and choose” how to assist its debt-laden neighbor Dubai, a senior Abu Dhabi official said on Saturday.

“We will look at Dubai’s commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts,” the official told Reuters by telephone.

Japanese banks’ exposure to Dubai at JPY100 bln -Nikkei (Reuters):

Nov 28 (Reuters) – Japanese financial institutions, including three major banks, face loan exposures of about 100 billion yen ($1.16 billion) in Dubai, the Nikkei business daily said.

Dubai debt woes may hit U.S. property market (Reuters):

“This downturn has had more of a global impact,” said Tony Ciochetti, chairman of Massachusetts Institute of Technology’s Center for Real Estate in Cambridge, Massachusetts.

“Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower,” wrote Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida.


the-atlantis-hotel-in-dubai
The Atlantis hotel in Dubai.

Dubai or not Dubai — that is the question. Dubai’s sorta-kinda default (a state-owned enterprise seeking a rescheduling of its debts) is, by itself, not that big of a deal. But who else looks like Dubai? What kind of omen is this for the next stage in the financial crisis?

As far as I can tell, there are three ways to look at it — three stories, if you like, about what Dubai means.

First, there’s the view that this is the beginning of many sovereign defaults, and that we’re now seeing the end of the ability of governments to use deficit spending to fight the slump. That’s the view being suggested, if I understand correctly, by the Roubini people and in a softer version by Gillian Tett.

Alternatively, you can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation.

Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it.

At the moment, I’m leaning to a combination of two and three. For what it’s worth (not much), US bond prices are up right now, suggesting that the Dubai thing hasn’t raised expectations of default.

Anyway, we continue to live in interesting times.

November 27, 2009, 9:14 am

Source: The New York Times


For myself I am sure that the end of deficit spending is near:

US Government Is Facing Wave of Debt Payments

OECD warning: Britain risks ‘debt spiral’

Obama administration posts widest-ever October budget deficit

‘Somehow’ deficit spending needs to be financed:

Senate Health Care Bill: 17 Tax Increases = $370.2 Billion

Obama Lied About Health Care: ‘Nobody considers that a tax increase’ – Ask The Justice Dept. And Joint Commitee on Taxation!

US: Up to 95.2% Income Tax Rate Needed to Close Deficit in 2010

(Forget about generating a higher tax revenue through deficit spending because it stimulated the economy. That is a complete illusion (or a illusionary short-term effect at best) and it has been proven to be completely wrong by Friedman/Phelps.)

Obamanomics Keynesianism is totally inefficient:

President Obama creates 640,329 jobs at a cost of $323,739.83 per job

… and even that ‘success’, in my eyes a complete failure, is based on accounting fraud:

Lawmakers Slam Obama Administration for Faulty Job Data on Government Web Site

Obamanomics is THE the dead wrong policy, unless you are an elite puppet and this is your intention:

“When a country embarks on deficit financing and inflationism you wipe out the middle class and wealth is transferred from the middle class and the poor to the rich.”
– Ron Paul

More on Dubai:

Bank of America: Dubai Woes May Reach ‘Sovereign Default’

Dubai meltdown: Crash hits new low; The emirate can no longer meet its obligations; Celebrities caught out

Dubai: Real Estate Down 50% From Peak

From the Palm Islands to Emirates Bank, grand Dubai, United Arab Emirates, feels the economic crunch

Dennis Kucinich: Bailout Money Going Overseas

In Dubai, guest workers are stranded without jobs

Dubai property chief rounds on accusers

Dubai will soon be looking like a ghost town

Dubai Real Estate Crash

Sun, sea and sewage in the playground of the rich in Dubai

Arab countries have lost $2.5 trillion in the past four months

Once Booming Dubai Goes Bust

Gulf stocks plummet in turbulent year; Dubai shedding almost three quarters of its value

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