THE NEXT RECESSION...
Saturday, November 28, 2009 at 06:00PM The spectre of “Financial Crisis 2” continued to loom over global markets yesterday after Dubai’s revelation that it may not be able to meet its debt obligations.
Stock markets in Asia and the United States fell sharply while the dollar and Japanese yen rose as investors shifted their money to their perceived safety. UK banks were also revealed to be the biggest lenders to the United Arab Emirates, which includes Dubai, with more than $50 billion owed by the Gulf state’s residents.
In another blow to the beleaguered UK banking sector, the Royal Bank of Scotland emerged as the largest single loan-arranger to Dubai World, the state-owned conglomerate that sparked this latest financial crisis when it sought a standstill on its debt repayments on Wednesday.
RBS has received £££billions from the UK taxpayer to bail them out so far, now this could get even worse!
I believe that we are still in severe economic peril and a combination of political foolishness and commercial stupidity means that 2010 will see the global economy dip even further. Those who run with the suckers pally and believe the banks are on the road to recovery are fooling themselves!
Banking Crisis, Global economy 
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Reader Comments (17)
I read that £62 billion had been covertly paid into RBS to prevent its collapse - and now there is more needed? Who actually gains from the UK increasing its national debt by £62 billion? Who owns this and the rest of our >£200 billion national debt? Who is collecting on this?
Almost exclusively, Allan, the British Government will borrow from the Bank of England and no one else. A bit of loaning might go on between states, like loans from America, France etc but if there is £200Bn in debt then I would bet that over £199Bn of it is with the Bank of England.
Seamus, - as ever and so reliable, every day a good joke! the world would truly be a grey place without you comedians....:-)
We thought that the U.K. was making money from the financial and capital centres in the square mile. Now it seems that this "industry" was all along a chimera, an illusion. Those monetarists and followers of the Austrian school of economics were always, totally and completely right, and the Keynesians merely dreamers. Our Gordon and the badger were always wrong and still are leading us all down the garden path. Even as I write their presses are printing money as they grow white hot. Of course reality will intrude most rudely next year. God help us all if our only hope is the two little boys, Cameron and Osborne. When the ordure hits the spinner, those responsible should be put on trial. Enough of this sanctuary for politicians!
Have to agree with Frank!
Frank, Monetarism caused this. The Thatcher Government replaced Keynesianism. Under Keynes, new businesses were subsidised by the Government etc. Thatcher pulled that and so the new Entrepueneurs, who didn't have money, had to look somewhere else for cash, and they turned to the banks and so started the trend of building the economy on Debt. It was Monetarism that caused this, not Keynesianism.
Another element to this Dubai debt crisis is that Labour, and especially Gordon Brown, since he was Chancellor, has been cosying up to Islamic financial interests, and selling us the myth of risk-free 'Shariah finance'.
But now, the costs of the Islamisation of the British economy are coming home to roost.
It was Monetarism that caused this, not Keynesianism.
It was neither. Absurdly low interest reates for an absurdly long time, coupled with absurdly inept "regulation" were the main causes.
And the same lunatics are still running the asylum.
"I read that £62 billion had been covertly paid into RBS to prevent its collapse - and now there is more needed? "
RBS and HBOS. Both loans were repaid.
Who ever is responsible, another recession is being talked about. Less fierce than the first,but its coming none the less.
I could never understand the Dubai economic model, or at least the part of it that had it projected as a major tourist center. If I made a list of 100 places that I;d wish to see, Dubai would not make the list, unless its as an incidental stopoff on the way to a far flung destination.
And with ultra long range aircraft about to arrive, there may not be the projected need for Dubai as an air transit hub.
The cause of the crash was overbearing debt, - none has yet been repaid, instead more has been borrowed, - so much so that there is virtually none left to borrow, gilts and treasuries are getting harder to sell, by the month. Yes all that printing and borrowing has lessened the pain, but it has done nothing to cure the cause of it.
All that debt has to be repaid sometime, either that or there will be numerous defaults, where whole economies collapse and virtually declare bankruptcy, and cannot or will not make repayments. It has happened many times before, but has been never been on the scale that we are likely to see.
No-one forgives fiscal debt without expecting some benefit in return, what that may entail is anyone's guess, but that debt will have to be repaid either in cash or kind. Believe some of the conspiracy theorists and it seems some form of national servitude could well be on the cards.
All that those 'stimulus' payments have achieved is to spread the liability for all of that debt from 'the Few', - the financial institutions,- to the 'Many' - the taxpayers. That's what quantitative easing and subsequent devaluation do, via inflation. The short term pain of letting the Banks fail, is nothing to the pain we will all feel for some time to come.
For all our sakes I hope an answer can be found, - I am sure there is one somewhere, and miracles do sometimes happen...
Phantom,
Surely Dubai is an Arabic concept, and is designed and situated along those lines. Small wonder that it is of limited appeal to western eyes. It might well been seen sometime in the future as an example of the cultural difference between cultures.
As has been said, and not just about the female sex, - 'Beauty is in the eye of the beholder'.
Ernest,
"The cause of the crash was overbearing debt,"
Coupled with a valuation problem (e.g. the housing bubble).
(Though I never understood why if the values of assets can prove to be illusory yet the value of the debt is apparently set in stone.)
Frank,
Which came first - 'the chicken or the egg'? , or put another way, 'the valuation or the loan'?
The clever bit is that the value of most assets are illusory, some more so than others, and the lenders had become so smugly comfortable in their little world of usury, that they completely forgot that fact.
The problem was and still is exacerbated by regarding one's residence more as a liquid asset, than as a necessary item. Ongoing inflation did much to encourage the idea, seemingly promising an always increasing value. Just one of those little fantasies salesmen and politicians like to encourage...
Ernest,
"Which came first - 'the chicken or the egg'? , or put another way, 'the valuation or the loan'?
The clever bit is that the value of most assets are illusory, some more so than others, and the lenders had become so smugly comfortable in their little world of usury, that they completely forgot that fact."
Yes it just struck me as funny that the asset prices can take a tumble but the loans (which are a kind of asset on some other balance sheet) never seem to. At least never in my favour :-)
I know that there are bad debts etc so it's not that simple but the whole thing is such incredible smoke and mirrors that I wonder if anyone on the planet actually understands it.
Frank,
Everything we possess is an asset of one kind or another, and cash most certainly does depreciate - which is why inflation is so damaging. That is why all this hocus-pocus that Brown and Obama are doing their best to devalue our currencies, - debts repaid with a devalued currency are debts more easily paid, the problem arises when our creditors also realize that fact, and refuse to lend more, or to renegotiate a loan.
Gilts and Treasuries etc. are no more than government IOU's, and lenders look for a much higher interest rate than they otherwise would to counteract any inflation. It all becomes self-defeating after a while, - and the debts still have to be repaid.
But you know this - so why am I repeating all this?.... :-)