Markets the world over had a scare last week when Dubai World, the Persian Gulf-based real estate outfit that is presumably backed by the emirate of Dubai sought to defer payment on its debt for six months. The fear was that Dubai was another domino to fall in the global financial crisis, which could have ripple effects throughout the world’s financial system.
With little in the way of energy assets, the city-state of Dubai has risen out of the desert sands in recent years to become a major financial services, tourist destination and logistics hub. The building boom there in recent years, which would put the Las Vegas casino builders to shame, has busted with a precipitous drop in real estate values and an office vacancy rate of 40 percent.
This week, calm has been restored as the size of the debt problem has been assessed to be much lower than previously believed and as Abu Dhabi, Dubai’s larger neighbor, is stepping in to save the day.
The tale of excess in Dubai didn’t happen in isolation and there could well be others like it to follow. But a key takeaway from the story is that interest rates will remain extremely low for the foreseeable future.
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