Spend now, worry later

The White House is asking for the remainder of the money from the $700bn Troubled Asset Relief Programme, and Congress looks likely to dole it out despite growing criticism about how the money has thus far been used and how little really is known about just how it has been used.

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The White House is asking for the remainder of the money from the $700 billion (Dh2.57 trillion) Troubled Asset Relief Programme, and Congress looks likely to dole it out despite growing criticism about how the money has thus far been used and how little really is known about just how it has been used. This will undoubtedly please the chorus of economists clamouring for greater fiscal stimulus to prevent a deeper slide in global growth. The gist is the same: we need more money, everywhere, anywhere, now. We'll obviously have to deal with the consequences later. The waste, the corruption that will inevitably result.

It is interesting, though, how few economists are now sticking to a strictly free-market orthodoxy and saying governments should allow financial institutions to fail and for free markets to clean up the economic fallout organically. Few sane people now fail to understand just how disastrous that would be. Funds are still creeping into emerging markets in a sheepish bet on a recovery later this year. But the New Year's rush into risk appears to have abated, and the dollar is regaining strength as a safe haven and as investors look to the 'Great Obama Stimulus Package' after Jan 20. This will apparently include tax incentives for capital investment, but not for keeping people employed - Democrats strangely oppose the latter.

Some investors are also betting that even the $1 trillion-odd that Washington will need to borrow isn't that much considering the global appetite for the relative safety of US dollars. Yes, the US economy has been mismanaged, its financial industry left to rack and ruin, but it may still be the best-run economy around. The US, therefore, may enjoy some sort of second-half market recovery if only credit markets stay thawed and the machinery of Wall Street can be repaired. A combination of Smith Barney with Morgan Stanley's retail brokerage unit might be a step in that direction. If it works, there may be a revival of investment once the dust settles surrounding the economy's hard landing. Look first for a bottom in corporate earnings.

The situation in the UAE, where one emirate is pledging to go into deficit amid questions over its ability service existing debt, is being mirrored in the US, where many states are raising spending despite falling revenues and rising funding costs. In both cases, federal funds may be the only answer. In the US, this will undoubtedly come at a cost, both financially and especially politically, to states that still proudly exercise their constitutional right to tax and spend. In the meantime, regional economists are gradually tapping down their forecast for economic growth, or the lack thereof. Some are now predicting recessions in the UAE and Saudi Arabia this year. The notion that the region would escape the global crisis seems long forgotten. Only regional consumers - or employees would be another way of putting it - remain in the dark, according to a MasterCard survey that shows resilient confidence in spite of falling housing allowances, rising unemployment, easing property prices and cooling growth. The latest Colliers survey points to lower prices quarter-on-quarter in Dubai. But let's not lose our heads here: the survey also says prices in Q4 were still up 59 per cent from the same period in 2007. That's a pretty respectable return if you're a property investor, unless of course you were one of those people hoping to sell your flat in just a few months. warnold@thenational.ae