“Broad credit metrics suggest there is downward rating pressure for several developed market economies and, even if we don’t see rating downgrades, increasingly the markets are pricing in the risk of credit deterioration anyway,” said Rashique Rahman, head of emerging-markets macro strategy at Morgan Stanley, the investment bank. The big fear is that, if economies such as America and Britain were downgraded by the agencies and their borrowing costs rose, the effect would be felt throughout the credit markets, making it more expensive for businesses and emerging-market economies to borrow. It could set back the global economic recovery.
Japan is back into recession mode. Announced 2nd stimulus. Dubai World was bailed out with $10bn, UBS propped up, and Austrian bank nationalized, …
The next big pothole is somewhere in the EU/UK (Britain, Ireland, Spain, Greece, Portugal, Iceland), or even America (2nd half of 2010). And when governments can’t spread hopes with free money (in the short-term), tightening the global credit market, then we have real problems.
American pundits call it the Great Recession. I call it then The Great Aftermath of the Great Recession.
UPDATE 2hrs later: Mexico just got downgraded. Cut by S&P from BBB+/A-2 to BBB/A-3. Outlook is “stable”… absent a hyperinflationary collapse. Expect a rebuttal from Goldman Sachs, which has been axed the wrong way for quite a while.
In a press release S&P expressed its disappointment with next year’s budget. This is a particularly bitter pill for Mr Calderón to swallow, as it comes after attempts by his administration to diversify sources of government revenue were significantly watered down during its passage through Congress.
Initially Mr Calderón’s government had asked Congress to raise value added tax by two percentage points to 17 per cent, as well as to place a 2 per cent tax on foods and medicines for the first time.
The idea was to reduce the country’s dependence on oil revenue, which accounts for more than a third of total government income. Oil production has fallen precipitously in recent years, declining from a daily average of close to 3.4m barrels in 2004 to just 2.6m barrels today. (Source {c} FT)
The global consequences of Dubai’s debt problems
I posted yesterday a brief statement about the case of Dubai;
DUBAI. The Question is — ‘Is it contained?’
Guaranteeing the debt ‘on a case by case basis’ may help, but it (will) overshadow the so claimed recovery of the US. Sentiment can turn quickly, many real estate properties in the world and in the US (are connected) have to revolve their debt in the coming months ahead. As big and small companies have to.
And with the prospect of a subdued recovery (eventually double-dip), and weak financial markets - containment is again the buzzword #1. Goldman Sachs and others may make money in proprietary business, but banks don’t do business with Main Street as they did before.
We all sunk into it because we are connected, we all sink when one loses control. Look out for further potholes, Dubai is one.
Now one day late, The Economist comes with a quiet subtle hint what it means for the world.
Dubai’s failure re-awakened a number of dormant fears in investors. Some worried about banks that had lent heavily to the region. Others wondered if Dubai was carrying far more than the $80 billion or so in debt that it has owned up to. The announcement reminded investors that tacit sovereign guarantees may be worthless. Earlier in November, for example, Ukraine’s state railway firm, Ukrzaliznytsya, failed to repay part of a syndicated loan, and its energy firm, Naftogaz, restructured its debt.
More fundamentally, Dubai’s wobble raised the spectre of a sovereign default. Dubai’s government is not technically on the hook for Nakheel’s debts. But the government’s hesitation in saving its national champions nonetheless demonstrates its fiscal limits.
[…] But many investors in Abu Dhabi bought into the Dubai boom. They will lose money if the bust turns into a protracted slump.
Ice Cold Water.
We are far from recovery. We just jumped ship, the Titanic. The ship is long gone. So many people are now in the ice cold water, freezing to death. Fighting to get onto some buoyant wreckage. And with every hour, more people, um, institutions die in the cold sea. That is how I visualize this.
The Double-Dip Is Here (Q1-2010) or even Q4-09/December
Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company’s creditors could lose billions of dollars.
Dubai World’s borrowings include a $3.5 billion Islamic bond that was due to be repaid by Nakheel, the property developer behind the Palm Jumeriah islands, in two weeks.
Many creditors had assumed that the structure of Islamic bonds implied there was state backing for this type of financing and Dubai’s failure to support the Nakheel debt could have damaging implications for the wider Islamic market.
UK banks are among 70 institutions to have loaned Dubai World money in recent years as the company grew rapidly and bought foreign assets such as the Turnberry golf course in Scotland and P&O ports. Dubai’s Department of Finance said creditors will be affected in “the short term” by the Dubai World’s restructuring.
It has also emerged today that Nakheel has requested that all three of its sukuks (Islamic bonds) traded on the Dubai stock exchange be suspended. This includes the $4 billion sukuk due to mature on December 14, which triggered the current crisis.
The group’s statement said the three sukuks would remain suspended “until it is in a position to fully inform the market”. ({c} Source)
DUBAI. The Question is — ‘Is it contained?’
Guaranteeing the debt ‘on a case by case basis’ may help, but it (will) overshadow the so claimed recovery of the US. Sentiment can turn quickly, many real estate properties in the world and in the US (are connected) have to revolve their debt in the coming months ahead. As big and small companies have to.
And with the prospect of a subdued recovery (eventually double-dip), and weak financial markets - containment is again the buzzword #1. Goldman Sachs and others may make money in proprietary business, but banks don’t do business with Main Street as they did before.
We all sunk into it because we are connected, we all sink when one loses control. Look out for further potholes, Dubai is one.
Many have given their erudite opinion on the possibilities of a prolonged and sluggish recovery.
Now Dubai (nobody had them on their cards, everyone thought East Europe would be one of the first big losses /sovereign debt) and its associated construction boom is likely to put a deep dent into many banks balance sheets. Thus less likely to lend out money to productive investments in the economy, generating employment.
First the financial crisis, then the economic crisis, then the social crisis. That is my prediction, the longer we are in this hole others have put us, the higher are the risks of social upheaval. Because we can’t nothing for it. It was them we don’t know about.
Debt, Debt, Debt, more detailed debt.
