Yes, Virginia, there is a Santa Claus. But he only comes for kids — not for governments that have bragged, borrowed and spent their way into bankruptcy. Two Thousand Ten is going to belong to the Grinch.
For spendthrift governments around the world, the new year’s going to bring massive defaults. The new globalization may be the globalization of a second wave of financial crises.
The world economy is not convalescing. It’s just been pumped full of unaffordable medicines. Borrowing madly, countries as diverse as Greece and Dubai have been buying time, not fiscal health.
Built on financial quicksand, Dubai (an Arab Las-Vegas-without-the-fun) is in collapse (predicted by this column years ago). Quasi-governmental corporations backed by the ruling family are at least $80 billion in the hole. The recent transfusion of 10 billion bucks from Abu Dhabi merely applied a Band-Aid to a hemorrhage. Dubai can’t pay.
Eighty billion in bad debts may not sound high in President Obama’s Washington, but Dubai’s just a city pretending to be a country. It produces nothing. There’s no inherent wealth. It Madoff-ed the world with extravagant brochures and nutty projects.
Speculators went nuts, proclaiming Dubai the city of the future, where wealth could only beget more wealth. The frenzy produced the craziest real-estate bubble in the world, as gullible investors mistook a couple of shopping malls for a civilization.
Dubai’s approach to development mirrored that of much of the Arab world, expecting money to do all of the work. But Dubai’s ambitions weren’t backed by oil wealth, only vast development schemes that never should have fooled a single investor. But investors wanted to be fooled.
Speculation hasn’t been the only villain generating financial ruin around the world. Another villain has been exploding entitlements. Several European states (plus my favorite foreign country, California) have been downed by a self-inflicted one-two punch.
In Ireland and Spain, housing bubbles created the illusion of roaring economies — and pandering governments inflated already generous social programs. In Italy and Greece, state giveaways, bubble economies and rabid corruption created national debts in excess of GDP.
Even in this age of globalization and complex financial instruments, one law of the financial jungle remains brutally true: The bills come due eventually.
Dubai’s bankrupt, but frightened investors pretend otherwise. Greece is bankrupt, and the other Euro-currency states don’t know what to do: The strict fiscal-policy rules for the Euro-zone are crumbling.
Will EU governments — each with its own problems — cobble together a rescue package? Greece’s socialist government certainly isn’t going to embrace painful austerity measures — and the population, conditioned to an entitlement mentality, would tear Athens apart.
And after Greece, what about Spain? With 20 percent unemployment and an economy strangled by disincentives to job creation, Spain counts on being considered too big to fail.
The Baltic states’ economies are tubercular. Central Europe’s headed for the post-modern equivalent of debtors’ prison. And even Britain (and the global bankers’ fortress, the City of London) is still in deep treacle.
Then there’s California (and New York).
Taken in isolation, any of these problems could be managed. But these “local” crises refuse to be isolated. Toss in suspect statistics from other troubled states and hollow economies from Argentina to Russia, and 2010 looks unpredictable, to put it gently.
Perhaps the world’s financial wizards will head off this looming debacle, too — but don’t count on it. Chain reactions could devastate European banks and budgets .
The good news? Venezuela’s also in serious economic trouble. The bad news? Venezuela’s also in serious economic trouble.
Then there are the great unknowns, a Russian economy that may be far more fragile than anyone wants to admit, as well as China, opaque and insatiable.
One of the reasons China’s desperate to keep expanding its trade is that its banking sector is flimsier than chopsticks — plagued by uncollectible sweetheart loans made to favored firms and institutions. Perhaps Beijing will dominate the 21st century. But it’s also possible that China’s economy will turn out to be the biggest Ponzi scheme in history.
The best scenario we could see in the global economy in 2010? Rescue-package fire brigades rushing to deal with these crises individually. What’s the worst? A chain reaction that leads to a rash of national defaults, followed by a world banking and liquidity crisis, Part II.
What of our own country, with its soaring debt, congressional irresponsibility and an administration whose No. 1 priority is expanding unaffordable entitlement programs? Draw your own conclusions.