Dubai + Iceland = Bubble Posterboys
When it’s all said and done, these economies personify the bubble more than even Bernie Madoff.
Instead of inflating the expectations of an individual or group of individuals, these were entire countries who hoodwinked the rest of the world. They made legitimate plans for their sustained meteoric rise, and they believed what they were selling.
This wasn’t a matter of Tom, Dick or Harry living outside of his means and buying a house he couldn’t afford…we’re talking about institutions that affect the lives of millions of people. Fueled by cheap borrowing costs and wildly irresponsible appetite for greater and greater risk on the part of investors, these countries built delusions so grand that they’ll go down in anecdotal history as symptoms of the bubble.
In five years, someone might ask you, “Remember Dubai?” If so, you’ll probably just chuckle in disbelief at the kinds of things people used to believe.
Will the Third Bubble Brother Please Step Forward?
But as we said above…these things tend to come in threes. If so, then who’s the next bubble brother? Which country only seems to have palpable value today, and when we look back we’ll see only bubble-era hopes and dreams?
Our top candidate in this race is currently Venezuela.
To be sure, the US, the UK and Japan are loaded to the gills with debt. The PIGS in the EU aren’t much better off. But compared to Iceland and Dubai, each one of those economies is a leviathan. They’re in the major leagues. And in keeping with Iceland and Dubai, we’re looking for someone out on the fringes. That someone is Hugo Chavez, the self-proclaimed “Socialist Revolutionary” down in Venezuela.
Hugo took over Venezuela in 1999, and he’s been making an awful stink down there ever since. He’s the type of leader who never would’ve lasted during the Cold War…mainly because of his (debatable) successes with implementing socialist policies.
He’s endured strikes and coup attempts, nationalized industry in everything from telephones to cement…and he’s managed to maintain the popular favor far longer than most Latin American dictators – largely thanks to his entitlement programs and food price controls that benefit the poor.
But any Latin American history buff will tell you these things never last forever. And Chavez’ administration is starting to show its age…
His price controls have lead to sporadic food shortages, with companies consistently operating at a loss to meet his price targets. The state-run oil company has started to falter in production, failing to meet the nation’s OPEC quotas. Even with oil exports fetching near US$80 a barrel, the country’s still on the eve of crisis.
In a recent interview regarding the deteriorating situation at the nation’s banks, Chavez was quoted as saying, “You can be sure that if I need to intervene in all the banking system, I will do it.” That threat of bank nationalization caused yields on the country’s debt to skyrocket immediately after the interview, as investors started pricing in the possibility of a default.
For years now, Chavez has been America’s unnerving, south-of-the-border Socialist neighbor. His reign has already outlasted so many other comparable regimes in the continent’s history. Looking back five years from now, you probably won’t have a hard time believing that even that was a byproduct of the bubble.
