Friday, November 27, 2009

Dubai Request for Debt 'Standstill' Raises Fear

I was originally going to blog about an article about an Economist article on interest rates and monetary policy or something about the fiscal deficit.

But that’s nowhere near the most interesting news story for today, and quite possibly for the next week or next few months.

“DUBAI, United Arab Emirates (AP) -- Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it's asking for a six-month reprieve on paying its bills -- causing a drop on world markets Thursday and raising questions about Dubai's reputation as a magnet for international investment…Dubai World, would ask creditors for a "standstill" on paying back its $60 billion debt until at least May.”

Link to Article

Another bubble finally dropping the ball. Inherently connected to the original sub-prime “crisis”. And very much related to the U.S. commercial real estate problems that I’ve been discussing in my previous posts. It’s all in the same realm. Countries that have relied on cheap credit to finance the past real estate boom such as the U.S., Dubai, and Spain are all currently in trouble. And countries that have relied on those countries are also in trouble, which means quite a lot of countries.

Investors hate uncertainty. And this extremely vague announcement from Dubai just upped the uncertainty in the stock markets (obviously including the bond markets). And don’t think just because it’s so far away in Dubai that it won’t affect the international markets.

Expect some violent swings coming soon to a stock market near you.

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