Political entropy rears its ugly head

It turns out that Nouriel Roubini and Stephen Roach weren't the first to predict the demise of the US economy. Russian academic Igor Panarin has for a decade been forecasting a US economic collapse in 2010 that precipitates a civil war and political break-up. And now Russian state media, in a fit of schadenfreude or wishful thinking, is taking him seriously. Will it be the automobile that sets off the storm? The US Government has not gotten into the auto business, buying a US$5 billion (Dh18b) stake in GM's auto bank, GMAC, which is like the Vatican buying a stake in Durex. The White House is also creating a special facility within the $700 billion TARP to buy stakes in automakers, which at last check, were not part of the financial system TARP was passed to rescue. Did you feel that? The dollar's slide just shifted into second gear. Obviously, the US recession will continue to be bad news for exporters, whether of automobiles or oil. Discussions of imposing an income tax among GCC members will doubtless do little to encourage new investment in the non-oil sector. With oil prices likely to average half what they did in 2008, GCC governments will have a larger role to play with less income in 2009 and 2010. The trick will be engineering the switch back to private sector-led growth in late 2010 and 2011. Discussions of diversifying government revenue might best be broached once the switch has been made, and not before, lest the still creeping privatization of the Gulf economies be reversed. In the meantime, governments need to make sure lower fiscal surpluses and even deficits don't derail efforts to build out their vision for the Gulf's more sustainable economic future. Mile-high skyscrapers may not be indispensable, but transportation links and downstream industries are vital. [e-mail]