The sandstorm in Dubai has hit financial markets in most parts of the world. It is tough to assess right now how serious the West Asian emirate’s debt problems are. But the past 48 hours should hopefully act as a reminder to investors and analysts that while the worst may be over for the world economy, the recovery is still fragile.
Financial markets have been on a roll since March, first growing in confidence and now almost dangerously sanguine. Most traders and investors have not bothered to ask themselves a simple question:?If the crisis is indeed over, then why are central banks and governments still continuing with their stimulus programmes?
Dubai World, the emirate’s investment company, is now staring at a default. It has told creditors it needs time to pay back the $60 billion it owes them.
Iceland tumbled into near bankruptcy in 2008 after the collapse of its three largest banks. The columnist Thomas Friedman famously called it a hedge fund with glaciers. Is Dubai a hedge fund with sand dunes?