The seaside emirate of Dubai shifted into crisis mode this week as its breakneck building boom stalled, its lending bonanza evaporated and the government pondered wider steps to rescue banks.
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Shares in the region have lost around $1 trillion since the beginning of the year as investors fled. The UAE finance ministry said last month it would inject 70 billion dirhams ($19 billion) into the banking system, and is already looking at doing more to keep interbank liquidity flowing.
Sources like Dubai Inc. have been financing Uncle Sam's spending spree up to now. Their increasing focus on using fiscal and monetary stimulus to shore up their own economies bodes ill for the U.S. economy. It's kind of hard to buy goods from the U.S., even if the dollar is devaluated in the future, if you need to spend money at home to keep your citizens from revolting. I'm going to keep making this point until everyone on the Web is sick of hearing me.
Middle East central banks will next have to dip into their dollar reserves to keep their economies from sinking. Future headline (proposed): "Dubai dumps dollars to defray domestic demand destruction." You heard it here first.
