December 6, 2009
Shock Waves from Dubai Default About to Hit Markets
Expect Deflation, Dollar Rally, Gold Retreat
by Clive Maund
(abridged by Henry Makow)
You've seen the flash - now get ready for the shock wave...
happened in Dubai just over a week ago was the bright flash, and the
media have used the intervening period before the shock wave hits to
reassure everyone that everything is going to be just fine - "You just
relax, nothing will come of it, it's only $60 billion down the drain or
whatever - have a cup of tea". The trouble is that it's not $60 billion
at all - the reality is that this is a default on a massively larger
Dubai was a vast sinkhole into which western banks and governments unquestioningly poured not just billions but trillions of dollars which was then leveraged enormously by means of derivatives enabling Dubai to build itself up into a latter day Rome, with a level of opulence and extravagance that would have made Caesar green with envy.
When people think of Dubai the things that come to mind are the
massively extravagant 7-star hotels, the towering record breaking
skyscraper, palm-shaped island resort complexes etc and forests of new
office buildings and apartments etc. What the vast majority don't
realize is that the stupendous leverage afforded by derivatives has in
addition enabled Dubai to create an immense global empire of
businesses, most of the elements of which are broke, having racked up
staggering levels of debt. Dubai is the nexus of the derivatives
pyramid and it is flat, stony broke.
Where did all the money come from
to pay for all these things? - why from taxpayers and pension fund
contributors the world over of course, but especially in the US, with
Wall St acting as a giant conduit sluicing a torrent of cash into
Dubai. The interesting thing is that there was never any accountability
- countries and companies vied with each other for the privilege of
pumping money into the exalted kingdom, seduced by its supposedly
limitless oil wealth, and requesting or requiring guarantees was
regarded as impolite. Now that Dubai is broke, the Dubai government has
suddenly distanced itself from Dubai World, and the attitude towards
the Western banks and governments who have poured trillions into Dubai
is "Tough luck - you lose, suckers".
What this means is that trillions of dollars which are now counted as assets on the balance sheets of banks worldwide and especially in the US are actually liabilities. So what do you think is going to happen to the stock prices of these banks - and stock markets generally, when the world wakes up and acknowledges this reality - when the shock wave hits?? Small wonder that the charts for Goldman Sachs and J P Morgan look very like the market charts before the '87 crash, but that was "small potatoes" compared to what is coming down the pipe this time.