Friday's downgrading of US debt, by the ratings agency Standard & Poor's, capped the world economy's worst week since the dark days of the 2008-09 financial crisis.
Amid fears of a new slump, massive sell-offs wiped more than $2.5 trillion (Dh9.2 trillion) from the value of equities around the globe. On Saturday, Saudi Arabian markets alone lost $7.5 billion, and the outlook is pessimistic as markets around the world open today. As investors seek refuge in safe assets, the market volatility we have seen in commodities and shares is set to continue.
On Thursday, Wall Street and a host of European stock markets saw their biggest one-day drops since the bankruptcy of Lehman Brothers in September 2008 turned the transatlantic "credit crunch" into a global recession.
Then, the world's 20 leading economies acted swiftly, recapitalising banks and providing temporary stimulus that compensated in part for the collapse in private demand. A great depression was averted.
Now, political leadership is lacking, both nationally and internationally. Some decision-makers, such as Angela Merkel, Germany's chancellor, are conspicuous by their absence. Others, including Silvio Berlusconi, Italy's premier, remain in a state of denial.
With every month of inaction or delayed response, the bailout bill has increased. As the euro zone's sovereign debt crisis moves from the periphery to the core, a cacophony of dissent highlights Europe's political vacuum. No wonder that spreads on Spanish and Italian bonds have widened, compared with safe German bonds.
In the US, last week's debt deal portends worse than merely partisan stalemate until the 2012 presidential vote. Indeed, reckless brinkmanship risks inducing permanent political paralysis at a time when the economy has hit stall speed.
Better-than-expected job figures provided some relief on Friday, but second-quarter US economic growth of merely 1.3 per cent per year spooked investors.
Western leaders are behind the curve and playing catch up, at a time when decisive action in the West plus a global grand bargain are needed to avoid a "double-dip" recession or Japan-like stagnation.
A repeat of the post-Lehman period is not on the cards. Most banking groups now have greater capital cushions and fewer toxic assets. Interbank lending continues. Money markets are not about to freeze.
But some similarities with the financial crash of 2008 are real - and dangerous. These include commodity bubbles, large-scale capital flight and sheer market panic. Unless the fear that has beset investors subsides, gyrations in commodity and share prices will carry on this week and beyond.
The greater fear is a combination of slowing growth, rising interest rates on sovereign debt and a marked decline in consumer and investor confidence. That is compounded by growing indications that expansion in China and other emerging markets is slowing, which would hurt exporting economies like those of the US and Germany, which are respectively the world economy's locomotive and the euro zone's powerhouse.
Austerity plans in Europe and now the US are hurting private consumption and investment, just as households and businesses are paying off debt and being squeezed by higher commodity prices, notably for oil. This dangerous dynamic depresses the economy.
Similarly, banks and governments are caught in a vicious circle of mutual dependence. Banks hold national bonds that serve as collateral in interbank lending but are falling in value. That exacerbates funding shortages, which over time may require bank bailouts just when governments face sovereign debt crises. If global investors keep swapping national bonds for safer assets, this vicious circle will mutate into a downwards spiral.
With political leadership lacking, market attention has shifted to central banks, especially the US Federal Reserve (Fed) and the European Central Bank (ECB). Nervous investors will look for any signs of another round of asset purchases (or quantitative easing) when the Fed meets on Tuesday. Likewise, European stock markets will probably continue to plunge unless the ECB starts buying both Spanish and Italian bonds. But central bank interventions can provide a temporary reprieve at best.
Western governments must now confront three challenges: in the short term they need to restore investor and consumer confidence by getting real about faltering growth and growing debt. Cutting sales taxes or suspending payroll taxes, for example, could boost consumption, investment and employment.
In the medium term, governments have to come up with credible programmes for growth and job creation. Local investment trusts and regional banks are needed to fund high-tech manufacturing. States could also underwrite needed infrastructure projects and support vocational training.
In the long term, a global "grand bargain" is needed to ensure that the burden of fixing the global imbalance between debtors and creditors does not fall on debtors alone.
Leaving that burden all with debtors would be a mistake. Across the West, austerity is already expected to have an effect twice as bad as in the last synchronised squeeze in the 1980s, which bequeathed high unemployment and deindustrialisation. Meanwhile, China's property boom is close to bust and its manufacturing output is slowing.
A conference call of G7 finance ministers before Asian markets open today won't do; only a grand bargain will.
Unless the collective interest is defended, currency or trade wars could trigger a collapse in global economic activity - not unlike the 1870s or the 1930s when a recession turned into a depression.
Last week, that prospect became frighteningly real.
Adrian Pabst is lecturer in politics at the University of Kent, UK, and visiting professor at the Institut d'Etudes Politiques de Lille, France
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
MATCH INFO
Uefa Champions League semi-finals, first leg
Liverpool v Roma
When: April 24, 10.45pm kick-off (UAE)
Where: Anfield, Liverpool
Live: BeIN Sports HD
Second leg: May 2, Stadio Olimpico, Rome
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
Five famous companies founded by teens
There are numerous success stories of teen businesses that were created in college dorm rooms and other modest circumstances. Below are some of the most recognisable names in the industry:
- Facebook: Mark Zuckerberg and his friends started Facebook when he was a 19-year-old Harvard undergraduate.
- Dell: When Michael Dell was an undergraduate student at Texas University in 1984, he started upgrading computers for profit. He starting working full-time on his business when he was 19. Eventually, his company became the Dell Computer Corporation and then Dell Inc.
- Subway: Fred DeLuca opened the first Subway restaurant when he was 17. In 1965, Mr DeLuca needed extra money for college, so he decided to open his own business. Peter Buck, a family friend, lent him $1,000 and together, they opened Pete’s Super Submarines. A few years later, the company was rebranded and called Subway.
- Mashable: In 2005, Pete Cashmore created Mashable in Scotland when he was a teenager. The site was then a technology blog. Over the next few decades, Mr Cashmore has turned Mashable into a global media company.
- Oculus VR: Palmer Luckey founded Oculus VR in June 2012, when he was 19. In August that year, Oculus launched its Kickstarter campaign and raised more than $1 million in three days. Facebook bought Oculus for $2 billion two years later.
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
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COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Fire and Fury
By Michael Wolff,
Henry Holt
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
The specs
Engine: 1.4-litre 4-cylinder turbo
Power: 180hp at 5,500rpm
Torque: 250Nm at 3,00rpm
Transmission: 5-speed sequential auto
Price: From Dh139,995
On sale: now
'Texas Chainsaw Massacre'
Rating: 1 out of 4
Running time: 81 minutes
Director: David Blue Garcia
Starring: Sarah Yarkin, Elsie Fisher, Mark Burnham
In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
Graduated from the American University of Sharjah
She is the eldest of three brothers and two sisters
Has helped solve 15 cases of electric shocks
Enjoys travelling, reading and horse riding
MATCH INFO
Uefa Champions League semi-final, second leg result:
Ajax 2-3 Tottenham
Tottenham advance on away goals rule after tie ends 3-3 on aggregate
Final: June 1, Madrid
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COMPANY%20PROFILE
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From Zero
Artist: Linkin Park
Label: Warner Records
Number of tracks: 11
Rating: 4/5
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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
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Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.