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Dubai Facing Severe Financial and Economic Crisis Over Debt

November 27th, 2009 Comments off
The global economic crisis has afflicted Persian Gulf states that have incurred significant leverage to finance massive infrastructure projects and overseas acquisitions. The potential global ramifications of this phenomenon have now unfolded, with massive falls in equity markets across the world in the wake of Dubai’s government seeking a suspension in payments on almost $60 billion in sovereign debt.
 

The credit default swaps on Dubai’s debt immediately climbed by 90 basis points, as investors staggered at the prospect of a major sovereign debt default. Other Persian Gulf emirates may also be at risk. However, the Gulf is only one region that is seriously exposed to the prospect of sovereign debt default. Much of Eastern Europe is financially under water. Ultimately, however, the worst case scenario by far is debt default by the United States federal government. With the U.S. government projecting structural mega-deficits for at least the next decade, can it be safely assumed that Washington will not follow in the path of Dubai?

 

 

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