Take Your Ski Vacation in Dubai

Dubai has many symbols of excessive spending and wild consumption. Dubai has to be the world’s prime poster child for the thinking that anything can be built anywhere, that money is not a barrier, that humans are limited only by their imaginations. Only in Dubai is taking a skiing vacation in the middle of a desert entirely possible. Not only possible but considered entirely normal.

From its humble beginnings as a Gulf sleepy fishing village 20 some years ago Dubai came to symbolize what big dreams fueled with big money can do. A few years ago who would have dreamed that the world’s tallest building, the now completing Burj Dubai would be built in Dubai? Or who would have imagined that Dubai would be home to the world’s first seven star hotel, the fantastic $1,900 dollar a night and up Burj-Al-Arab.

Little concern was given to how much it would cost to cool a huge skiing facility and produce all of that snow within a monster of a building sitting under a blazing desert sun. But then no one seemed to be concerned about the amount of water it would take to keep a championship golf course going in a desert environment either. To reach the sky and beyond was the goal of Dubai.

But to create the miracle of Dubai took money, a lot of money. Dubai had money but then leveraged what they had to extreme levels in order to keep on rapid fire building. No one seemed to consider what would happen if property values fell rather than appreciate year after year. The Dubai powers that be made straight line projections that never varied. Everything would appreciate in value forever and forever and demand would never falter. Dubai was to be a heaven on earth.

Rumors have flown about for months that Dubai was in financial trouble. Those fears were realized this week as one of the State owned firms requested a six month holding period for soon to be due bond payments. The world’s stock markets did not react well to this notification of a bond default. Well, kind of a default. Dubai still promises to pay, just not quite yet. Estimates are that about 80 billion Dollars in debt have been incurred as Dubai created miracle after miracle in the desert sands. The immediate concern is that the impact of a Dubai default may reach far beyond Dubai in this interconnected world.

Here is one reaction to the Dubai story from the NASDAQ website The entire article is extremely interesting reading.
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Now, let me just pause here and say one of the implications of this story that I really like is that human beings, universally, are overshooters. And the people of the UAE have now shown themselves to be overshooters in classic fashion. The UAE obviously looked at its considerable resource inheritance of oil and gas and then got about the business of attaching as much possible debt to this wealth and future growth as the world could stomach. This is yet another example of an infinite debt philosophy on both the part of the borrowers, and the lenders. And by the way, if you think humanity is going to collectively decide to build sustainable, low-growth economies on a voluntary basis then I say dream on. We’re all overshooters now.
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It’s the last sentence that really grabs my attention. Humans being all too human it is highly unlikely that a planned transition to a substainible low growth economy is going to happen in any developed nation or developing nation. Probably not until we are in full crisis mode will any meaningful action be taken by the governments of the world to rein in growth.

We are looking down the barrel of the consequences of climate change, peak oil, and a financial depression as excessive debt is squeezed out of the system. We are not in a recession, it is a depression and depressions take a long time to do their work of rebalancing debt and equity. Dubai follows Iceland as an example of what excessive leverage can bring on and we need to take it as another warning shot very close to the bow.

And as mentioned in the article from the NASDAQ website, another much larger State than Dubai faces massively increasing debt payments that eventually will have to be paid. What can’t go on forever, just doesn’t. Not even for the United States of America.

I wonder if this time next year if it will be possible to take a ski vacation in Dubai?