Tuesday, January 5, 2010

Interesting Year Ahead

As Dubai opened the new highest building in the world, there is hope that economically 2010 will be better than 2009. Don’t count on it people because we are living in interesting times. For non-Asians readers out there, that is consider a curse here.

Why do I say this? Because France just reported that their debt has reached record levels, and there is suddenly a new worry for the world. Just how many nations will be able to pay off their debts in the year ahead?

One of the ways nations raise money is to issue bonds in order to raise cash to pay for programs such as financing a war, public healthcare etc. These bonds are often considered safe investments because most countries would have no problems paying off their debt. One of the reason bonds are viewed (rightfully) as far safer is because countries could say raise taxes or issued even more bonds to raise money to pay off their debts. However as the case of Dubai proves, we are living in interesting times.

Anyone who questioned the danger of default can just look at the near default of Dubai. It was the darling of the world before it all come tumbling down but as big as Dubai was, it is really nothing compare to giant European countries defaulting. Already the ratings of Ireland and Spain had been cut by rating agencies and France look likely to join them.

Now before anyone say its impossible for countries to lack the money to pay off their debts, this sort of things happened before. Russia defaulted in 1998, Argentina did it in 2002, and the most recent case was Ecuador in December 2008. With the global credit system still under trouble due to the credit crisis last year, certain nations are now hard-pressed to raise money.

Greece and Ukraine are the 2 countries currently in the most danger. At least 3 rating agencies had downgraded Greece’s rating in the past month as Greece faces the risk of sinking under its debts and Ukraine had been having problems paying for its’ gas imports from Russia since early 09. If one of these European countries default…look out people.

Yes ladies and gentlemen, we are living in interesting times.

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