Great Depression Online Archive Issue:

The World Underwater

Great Depression Online
Long Beach, CA
December 01, 2009

Inside This Issue You Will Discover…

*** A Sign of Things to Come
*** Castles in the Sand
*** The World
*** And More

The world is too much with us; late and soon,
Getting and spending, we lay waste our powers;
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon!
-- William Wordsworth

A Sign of Things to Come

It must have been one hot summer’s day when the Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai, first conceived of The World.  Visions of a fabricated paradise of man-made islands, and riches galore, must have melted his brain like a chocolate ice cream cone on a desert sand dune. 

How else could one explain such a colossal hallucination?

Last Thursday, while many were indulging in their Thanksgiving feast, Dubai World announced it would be stiffing its creditors over $60 billion for at least the next six months.  We suppose someone, somewhere, upon hearing this disclosure, choked on their gravy soaked turkey…as they frantically dialed their broker.

Then, wouldn’t you know it, on Friday, the markets freaked out…

Hong Kong’s Hang Seng plunged 4.8 percent, Japan’s Nikkei fell 3.2 percent, and the S&P500 even lost 1.72 percent.

~~~~~~What’s Coming Next?~~~~~~

The shocking 1990 collapse of the Japanese Market.  The extraordinary U.S. economic boom of the ‘90s and early 2000s.  The devastating global recession that began in 2008.  These impacted everyone’s lives, investments, and fortunes.  The signs of their arrival were visible years and years in advance.  And yet…Almost No One Predicted Them.

The mainstream media didn’t.  The top economists didn’t.  The great financial advisers didn’t.  But One Man Did.

What’s coming Next?  When will it happen?  What should you do to Prepare for it?

Click Here for the Answers

~~~~~~~~~~~~~~~~~~~~~~~~~

“I think this is a sign of things to come,” said Dave Rovelli, managing director of trading at brokerage Canaccord Adams in New York.  “Commercial real estate continues to go lower.  People are going to continue to default on debt payments.”

Castles in the Sand

Even to the most casual of observers, Dubai’s massive credit induced growth leading up to last year’s financial crisis included all the indicators of a bubble mania…the world’s tallest building, an indoor ski slope, and The World – a development comprised of 300 man-made islands in the shape of the world’s continents.

“The biggest mystery of the Dubai debt crisis,” wondered Dan Roberts in the Guardian “is not why this desert dream has turned into a nightmare, but why it took so long.

“The key difference with a debt bubble like the one bursting around us now is that there can be a significant time lag between asset prices beginning to fall and investors acknowledging their losses.  Unlike the dotcom share bubble, for example, which drove stock markets up and then quickly down again at the turn of the century, credit bubbles often take a while to fully deflate.

“The developers who built those skyscrapers in Dubai knew it was getting harder to fill them, and that property prices were falling, but as long as they could pay their interest bill to the banks it made sense to try to hang on, in the hope things would improve.

“If anything, it has become easier to keep hanging on because governments around the world have driven down interest rates and pumped fresh money into the markets.

“Yet the fragility of Dubai's castles in the sand was hard to ignore for ever.  With little prospect of a new boom to replace the old one, property developers have finally acknowledged the unpalatable truth.  The big fear now is that international banks, including many of Britain’s largest, will no longer be able to pretend that these half-empty office blocks are worthy collateral for the billions of dollars of debt that has been extended.”

The World Underwater

Here, for spectator sport and game, we’ll pause to consider just one Dubai World development debacle.  To be clear, we did not make up what follows; it’s the main headline on the website for The World…   

“A Vision Made Real: The World is today’s great development epic.  An Engineering odyssey to create an island paradise of sea, sand and sky, a destination has arrived that allows investors to chart their own course and make the world their own.”

We appreciate this vision made real for its rich use of Homeric metaphors and for the rich conceit that investors can make the world their own.  Yet alas, remaking the world to one’s desire is quite an expensive undertaking.  For one investor, the world was too much with him.  Earlier this year Irish businessman John O’Dolan, who purchased “Ireland” and the “English” islands, committed suicide after his development company went broke.

If only he’d known The World’s ultimate fate…he may not have taken his failings so serious…

“That project is unlikely ever to be completed,” reported Jack Hughes for the Guardian.  “Work on it stopped earlier this year when the developer, Nakheel, ran out of money.  Deprived of essential maintenance and reinforcement, the islands are slowly slipping back beneath the waves.  ‘They're just blobs of dirty sand sinking back into the sea,’ said my sailing friend.”

Yesterday we learned the United Arab Emirates central bank would guarantee all deposits in locally owned and foreign banks.  Yet, they’ve not confirmed if there would be a full bailout out of Dubai World.  Still, regardless of if Dubai World’s bailed out or not, there’s one fact that can’t be denied… 

There’s a lot of bad debt that’s been sunk into Dubai and it won’t magically disappear.  Rather, it’ll sink the financial balance sheet of The World, which is now literally and figuratively underwater.   

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  The U.S. Department of Energy finally agrees: We’re running out of oil – FAST!  The world is heading for a catastrophic shortfall of oil.  And there won’t be any other source of energy available in time to replace it.  To say we’re going to experience turmoil in the energy market might be the understatement of the year.

How to Profit from the Oil Supply Crisis

 

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