“China launched the western development strategy in 2000, which emphasizes rural development of the west.

“The main components of the strategy include the development of infrastructure, enticement of foreign investment, increased efforts on ecological protection, education opportunities, and retention of educated youth from flowing to the coast.

“China understands that to attract foreign investment in the west, it has to build basic transportation and utility infrastructure. China has spent billions on bridges, expressways and power plants. And that spending spree is far from done.

“For example, China’s leaders embarked on 10 major, western projects in 2008 with a combined budget of $64 billion.

“And that is on top of the 92 key construction projects already under construction with a budget of more than $190 billion. Heck, the Chinese government is persuading college students to attend college in the west by offering free tuition.

“All that construction and growth is going to bring a lot of workers to the big four western China cities identified above, but Xian is the biggest winner by far. I say that because Xian has received $230 million of the $586 billion stimulus spending package.

“That is why Xian’s gross domestic product has increased by 13.5% in 2009, far faster than the 8% growth for the national economy. All that prosperity is attracting new residents, and everybody needs a place to live.

“China Housing & Land Development (NASDAQ: CHLN) is the largest condominium developer in Xian, and it has a bank of valuable land and existing projects that will keep it busy and rolling in the dough for years.”

You might say Dubai what? Greece who? Small peanuts… but they key is contagion risk.  In the late 90s a small economy (Thailand) caused a series of currency disasters which set the world on fire.  Which ironically was the first real use of power by Alan Greenspan to flood the world with US dollars (outside Black Monday 1987)… a now knee jerk reaction to any crisis. 

I know you laugh here saying “only $60 B!” – that’s nothing! Heck that’d 1/3rd of an AIG bailout, or 1/3rd of a Citigroup bailout.  Heck we committed $13 Trillion of US treasure to backstop the global economy. [Mar 31, 2009: Financial Rescue Package Now Totals $12.8 Trillion]  That’s how numb we’ve become to the figures and how epic the use of government/central bank interventions have been in this era… when $60 billion makes many shrug their shoulders.  How far we’ve “advanced” in a decade.

Anyhow, the solution is easy… just have Ben print $60B and hand it to Dubai for the “betterment of the world”… and if it affects any of our financial oligarchs just print more money to give to them as well.  Problem solved…. after all US dollars are akin to toilet paper nowadays.   In fact S&P futures should be up at least 10% because this insures an even more “extended period of” super low rates.  What happened to the party everyone?

• Global financial markets swooned Thursday, with London seeing its most precipitous drop in nearly nine months, a day after Dubai stunned investors with the news that it was asking banks to allow its main investment vehicle, Dubai World, to suspend its debt repayments for six months.Standard & Poor’s 500 Index futures dived 2.2 percent.
• Dubai World, the government investment company burdened by $59 billion of liabilities, sought to delay repayment on much of its debt. 
• The announcement — the global high finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.
  “People are worried about the contagion effect from Dubai,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which holds $75 billion in assets. “Events like this bring back all the bad memories from the global financial crisis. The market has rallied a long way and is very sensitive to any bad news.”
• Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the first global recession since World War II. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG.
• Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn. When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has no oil, was backed by its Arab emirate neighbors. At least that is what investors had assumed.
• The cost of insuring Dubai’s debt against default quadrupled Thursday.

This was one of my 2009 Outlier Predictions [Dec 16, 2008: 13 Outlier 2009 Predictions], but I was focusing mostly on Eastern Europe

#12 Wildcard/Europe: Potential defaults on debt arise in a host of smaller countries – especially of the Eastern European variety. I don’t know which ones, but they have been mini U.S.’s, borrowing over and above their head, but unlike the U.S. do not enjoy the fact the entire world rushes into their debt market when a crisis emerges. The opposite will happen – Iceland & Ecuador are just the precursor. Russia, if low oil prices persist, invades another former satellite country both as a nationalistic reason (diversion to the populace from worsening domestic conditions) and to try to light a fire under European natural gas, and/or oil prices.

Keep an eye on Greece for the next one…maybe Ireland too.

• The cost of protecting Greek and Irish government debt against default jumped on Thursday, according to data monitor CMA DataVision, as debt problems in Dubai fuelled risk aversion.

There is one benefit from this… rather than getting the annual CNBC cheerleading about consumer spending from dark mall parking lots across America, we might actually have some useful discussion tomorrow.