Spending has consequences

Last Friday, Americans made their traditional yearly hajj to our country’s version of Mecca, the local mall.

Black Friday is a wonder that can be replicated in no other part of the world. The day is complete with lines and traffic jams starting at 3 a.m. or earlier, mad dashes to store deals as the doors open resembling something like lions chasing meat and shopping carts stacked twice as high as the people pushing them. As long as no one gets trampled, the day is a success.

One could have hoped that a year after the worst financial crisis since the Great Depression, brought on by over spending and too much debt, would have been a lasting lesson for Americans. Alas, this does not seem to be the case.

However, this Thanksgiving brought unexpected news: Americans are no longer the dumbest spenders in the world.

That award now belongs solely to Dubai, as Dubai World, a subsidiary of the government of Dubai, announced it was on the verge of defaulting on approximately $60 billion of the emirate’s $80 billion in total debt held by creditors.

The default has even come as a shock to Sheikh Mohammed bin Rashid Al Maktoum, Dubai’s ruler, who stated this month, “I want to tell those people who nag about Dubai and Abu Dhabi to shut up.”  Like many Americans, the lessons of the financial crisis seem to be lost on him as well.

Despite what Dubai’s ruler may claim, this default is a direct result of a spending spree that puts Americans to shame.

Over the course of the last few decades, Dubai has been the wonder of the world.  At the peak of the market in 2006, Dubai held 24 percent of the world’s cranes as it expanded rapidly.  During this growth, the city built the world’s tallest buildings, ski resorts in the middle of a desert and palm tree shaped islands for the super rich. It even got in the business of making and selling submarines for recreational use.

The news of Dubai’s default sent global markets tumbling last week, as investors feared a global domino effect. Tokyo traders have already called this Financial Crisis Part II.

However, the chances of this problem exploding seem unlikely considering the debt at risk here isn’t even half of what AIG’s problems were last year.

Nevertheless, this event should serve as a reminder to the world’s governments like those of Ireland, Argentina and even the United States that massive debt has consequences.

It should also remind investors that recovery time bombs do exist and that the threat of a double-dip recession is real, despite the run up in financial markets.

While Dubai’s woes might currently be an isolated problem, the lessons from it and the recent financial crisis should not be lost on Americans and world governments.

Spending has consequences and money isn’t free. A greater focus needs to be placed on financial responsibility to prevent a future crisis from occurring again.