While the world was caught off guard by the news that Dubai is on the verge of defaulting on their debt, Sheikh Ahmed bin Saeed al-Maktoum, a family member of the Dubai’s ruling class, noted the decision to announce was carefully planned. I have no doubt the decision was planned; however, what does not add up to me is this quote:

“unprecedented growth, in Dubai and across the (United Arab Emirates), over the past decade has helped lay the foundation for what is now a broad-based sustainable economy beyond just natural resources.”

Is the United Arab Emirates truly in a position to continue growing beyond their involvement in natural resources? I would be hard pressed to believe such a statement.

The unprecedented growth in the UAE was based on energy, all other industries were offshoots. Why do you think the UAE is pushing for higher energy prices? The revenues from energy production fund government operations, and without that revenue the governments of the UAE will constrict – if not collapse.

A potential saving grace for Dubai may be their big brother, Abu Dhabi.  This write up by Northern Trust bank suggests Abu Dhabi may help the country restructure debt in exchange for assets such as Emirates airlines. As John Galt points out, someone sold a large amount of gold at the open of the markets after the Dubai news – was Dubai trying to raise funds, or was Abu Dhabi getting ready to assist? A rescue move by Abu Dhabi move would make sense on a number of levels – both business and cultural.

The real question that should be asked is this: Are any other governments facing default and would would be their “big brother” providing a rescue?

If Dubai does default, the credit markets will slow yet again, especially into emerging markets.  Such an event will put even more pressure on smaller governments facing debt issues due to the global economic depression. But what about other other governments, what about the “stable” countries such as the United States, United Kingdom, the European Union and Japan?

The sovereign debt worldwide has increased roughly $15.3 trillion dollars between 2007 and 2010, and the majority of the debt was placed squarely on the books of the countries above. If the United Kingdom or Japan were to default a number of countries may be able to assist, but if the United States where to lapse on debt there is no one with a bigger checkbook that could come to the rescue.

The future remains to be seen but if it can happen to Dubai – a country that was the jewel of the UAE – it can happen to anyone. Over the next year we may understand that the term “too big to fail” is indeed false.

The administration attempted to get around President Obama’s first “non bow” with the King of Saudi Arabia by saying he was going to shake the King’s hand.  It was obvious to anyone with an IQ that doesn’t fall into the mentally handicapped range that the President did, indeed, bow.  (Here is a reminder for you).

While meeting the Emperor of Japan this past weekend President Obama, once again, took a bow.  There is no getting around it, no “he was going to shake his hand” spin here. The President bowed. The administration came out saying the President was simply following protocol when, in fact, he was not.

Actually – there is NO protocol for a president bowing. Here is why: One of the pillars the United States was founded on was the rejection of a caste system (hereditary social classes and subclasses)   No Americans in any station are required to bow to royalty as bowing signifies submission to the person receiving the bow.  Bowing is not a sign of mutual respect.  As President Obama represents the United States, as a result, when the president bows to a foreign official he bows for all Americans.

You have politicians and pundits trying to make this a political thing, it is not.  This is a man that just ignored 230 plus years of principle. I would be very curious to know how any World War Two Bataan Death March survivors (if there are any alive today) feel about this.  Let us look past that for a second, let us look at the ‘gesture’ from the Japanese perspective.  What very well may have been intended as a sign of respect could be interpreted as a sign of weakness.

Kyodo News is running his appropriate and reciprocated nod and shake with the Empress, certainly to show the president as dignified, and not in the form of a first year English teacher trying to impress with Karate Kid-level knowledge of Japanese customs.

“The bow as he performed did not just display weakness in Red State terms, but evoked weakness in Japanese terms….The last thing the Japanese want or need is a weak looking American president and, again, in all ways, he unintentionally played that part

Some one really needs to alert the President that the message he is sending is, quite possible, not the message he is intending.

Economic Musings – The US

Driving in today I heard that the latest GDP numbers for the 4th quarter and it turns out that the U.S. economy contracted 6.2% in the last three months of 2008. This ends up being significantly weaker than the 3.8% originally predicted at the beginning of the month.

Not only this is the worst GDP drop in 25 years, but the magnitude of the revision is truly astounding. When one looks at the unemployment numbers and the large waves of layoffs in the last two months, Q1/2009 could easily be on par – if not worse than – Q4/2008.

Economic Musings – International

Two days ago I commented that people need to look beyond our boarders for additional indicators of the economic climate. I specifically singled out Japan and Germany. Both countries saw significant contraction in recent months, but what about other countries?

Chilean industrial production fell the most in 10 years as output declined 8.9% year over year, another country we can add to the recession list.

By now it should be clear that this is a world wide recession and no country is safe.

Don’t understand the credit crisis? Watch this.

I know a number of people who do not fully understand the credit crisis and how the economies of the world ended up where they are today. Here is an outstanding cartoon that manages to explain a rather complicated situation in a very simple, yet effective method.

This is a must watch!

• In German, Opel workers stage a mass rally demanding that GM (the Parent Company) keep their plant open.
• Saab, who just filed Bankruptcy in their home country last week, is also staging a protest against GM closing production facilities.
• The Latvian Government is on the verge of collapse due to the financial crisis.
• Greek farmers shut down airports and public services as a form of protest to the current economic conditions they face.

And the final random thoughts for this post…

It’s the weekend and I need a break – time to get away from the stresses of work, the world, and life in general.

I’ll be having dinner with my Parents on Sunday, which will be enjoyable, and I expect to watch The Curious Case of Benjamin Button as well.

There will be no cooking, exotic or otherwise… though I do have a few new things I want to try. One specifically is the Paprika Chicken Roast over @ ReTorte! Wandering Coyote really has some good food selections.

Finally, my review of The Prodigy’s Invaders Must Die will come this evening…

Until then!

One short term benefit to being a consumer based economy is not being on the supply side when the sudden changes in economic conditions take place.  To get a clearer picture of the economic reality, a picture that is not only focused on the pain the U.S. economy is facing, look beyond our borders to the countries that count on exporting goods in order to sustain economic growth.

Japan

The second largest economy in the world contracted at an annual pace of 12.7% last quarter.  By the very loose definition of an economic depression (10% or greater of negative growth), the Japanese are facing what the world fears most.  The contraction was accompanied by a decrease in exports by 45.7% from a year earlier, and a 31.7% decrease of imports.

This suggests three very obvious things – The Japanese consumer is not spending, the countries Japan exports to are not purchasing goods, and result further contraction is highly likely.

While still low, it would be reasonable for unemployment to start rising in Japan as companies, mainly manufacturing, begin slowing output or laying off staff in order to “right size” to the challenging environment. Toyota, a company known from not laying off staff during rough economic periods, will begin offering buyouts to employees. It’s just a matter of time before Honda and Nissan follow suit.

Germany

Germany, Europe’s largest economy, also fell victim to a decline in exports.  As a result, the country was the largest economic contraction in about twenty-two years.

While not as drastic as the numbers out of Japan, Germany’s decrease in exports by 7.6% is quite significant considering most look at the German economy as the beating heart of the Euro-zone.  Companies are halting production, laying off workers, and preparing for a significant decline in growth as economists expect the German economy to contract by 2.25% this year.

Seems to be a common theme, no?

Looking at this information makes me wonder…

So, have I stopped purchasing?

Hell yes!

I cannot even begin to remember when I spent a significant amount on an item that would be considered “discretionary”.  If I really put my mind to it, I would say last December I spend $150 on 3 pairs of Wool pants.  Everything else I purchase would fall into the category of household goods (weekly groceries) or entertainment costs (weekend brunch or a movie).  Any excess that I have goes immediately to paying off debts as I fear about my future, and I fear about my ability to provide for myself as I look at the events unfold around me.

While the U.S. economy is consumer based, we can see that the consumer – namely you and I – have stopped spending on goods.  As a result, we are no longer importing goods from our trade partners.  Once the economic data coming from Japan and German begin to stabilize, and only once the data stabilizes, will the world truly know economic conditions are beginning to improve.

With the American auto industry in the tank, German producers halting production during December, and Toyota reporting a full year loss, it was just a matter of time this type of information hit the newswire:

Vehicle production in Japan, home to Toyota Motor Corp. and other major automakers, plunged 20.4 percent in November compared to the same month a year ago to 854,171 vehicles, the Japan Automobile Manufacturers Association said.

 

That marked the second straight month of on-year declines and the percentage slide was the biggest since the group began compiling such data in 1967, it said.

 

Production of passenger cars in Japan decreased 20.3 percent in November from the previous year to 737,797 vehicles, while production of trucks here declined 20.9 percent for the month to 106,170.

If demand continues to drop the Japanese automakers will be turning to someone for an infusion of capital. It doesn’t matter how well run the company is, if no one is buying your product you cannot meet your capital demands.

Just for the record, here is a breakdown of cash/debt levels of Japanese and US automakers:

Japanese

Honda – 10B / 18B 

Toyota – 17B / 60B 

Nissan – 6B / 19B    

US

Ford – 25B / 157B 

General Motors – 16B / 38B

How creepy is this?

Japanese scientists at Tsukuba University developed a “human” robot to assist the elderly and disabled individuals with mobility issues.  Replete with a whopping 50 sensors (sarcasm) the robo-helper is going into mass production this Friday.

Here is my question:  If you have any ability to develop a robot that looks like a human and acts like a human, why develop one that looks as if it has Down Syndrome?