Dubai Defaults - An Unexpected Exogenous Event Ruins the Thanksgiving Seasonal Strength

We should have seen it coming because Dubai has been in trouble for quite awhile. Thousands of workers have fled the country for the past year and housing prices have crashed in this Middle Eastern make believe bubble town.

Then again, does it really matter that much? After all, Dubai is not in the same league as Citibank or AIG.  Dubai's debt is only a piddly $80 billion - not the hundreds of billions that we have become accustomed to.  So after the dust settles from the sell off in the world markets, I believe this will be a buying opportunity.  There will be lots of scare talk about other shaky sovereign funds, but that's the way that these things always play out.

The more important question is not about Dubai. Rather it is about President Obama who is spending like a drunken sailor and trying to pass the Federal Deficit problem onto our financially insolvent States. The United States has all the monetary stimulous that it needs. However, the fiscal stimulous has been pathetic. Instead of optimal targeted spending that creates jobs for areas such as much needed infrastructure, Congress has passed a pork barrel laden hodgepodge bill. 

Now the Congress is trying to pass the irresponsible health care bill and pay for it with higher taxes, deferred taxes, and more costs to burden the States. And the States are in deep trouble. California is unofficialy bankrupt, New York has very little money in the till, New Jersey hiked taxes and kicked out the Governor and the list goes on and on.  The fiscal mess that our 50 States are in is the untold story on Wall Street that is going to be a fiscal drag on the US economy. 

President Obama can not have it both ways by stimulating on the one hand and taking the stimulus away with the other. In my opinion a second pathetic fiscal stimulus package is coming somewhere down the road. Furthermore, the world financial authorities will have another round of talks to plug the hole in the dyke presented to us by Dubai.  When all is said and done, the Dubai debacle will give an overextended market a chance to pull back into buying range. But its the 50 State dominos and irresponsible Democrat spending spree that is the real issue.

In short, its not time to hit the exits yet. Thanks to the Fed, there is too much money sloshing around. However, the day of reckonning will come in the ensuing months as the State's fiscal crises unravels and as President Obama's health care plan comes to a head.