The Dubai financial crisis
I woke up this morning to the news that Dubai had basically defaulted on their debt. I expected a market crash as the result. So far, that hasn’t happened. It’s been a bad day, but not all that bad. But, to me, something just don’t feel right.
- Late June, California announces it’s basically bankrupt and starts issuing IOU’s. The Dow rose from 8,200 to 9,00 on the news.
- The FDIC announced it was bankrupt as of 9/30/2009. The Dow rose from 8,200 to 10,100 on the news.
- Throught out 2009, the unemployment rate has increased 25% to it’s highest level since 1983. During that time, the Dow rose 10%.
- The US federal debt increased:
2009 (est.) 12,867.5 90.4
2010 (est.) 14,456.3 98.1
2011 (est.) 15,673.9 101.0
2012 (est.) 16,565.7 100.6
2013 (est.) 17,440.2 99.7
2014 (est.) 18,350.0 99.8
It’s now exploring totally uncharted waters in that for the first time ever, it will actually exceed the GDP. - China seems to be looking at developing APEC moreso in the near future. That could pull investment money from the US. Who will buy our debt?
Now, I know the Dow has the shortest memory on the planet, but it just seems to me when you’re dealing with one financial disaster after another, it would have a negative impact on the markets. However, this Dow just seems to keep laughing at the bad news and climbing. I’d suggest it’s some sort of irrational exuberance. The only real justification I’ve seen is that the Dow over-corrected in 2008 and is returning to where it should be. However, if things have changed substantially, what is “where it should be”?