A Bizarre Twist for Bank Rates
December 27, 2009
Add this to your list of things to worry about: debt problems in the Middle Eastern city-state of Dubai.
If you ever gave Dubai a second thought when contemplating your personal finances, you almost certainly never thought you'd have to worry about its creditworthiness. And yet, in late November, the fates of this tiny emirate and your savings or money market account met unexpectedly.
The Dubai Crisis
In a nutshell, what happened in Dubai was that a government-owned investment company asked for a 6-month extension on some $60 billion in debt. This came as a shock, since Dubai has long been considered one of the world's richest nations. Now it seems that at least some of that image was built on debt they now can't afford.
Whether this proves to be just an isolated incident or the catalyst for another wave of banking crises remains to be seen. As last year's financial crisis demonstrated, the complexity of the interrelationships among the world's financial institutions means that the true implications of the situation in Dubai could take weeks or even months to become apparent.
Dubai, Debt, and Bank Rates
What could all this have to do with bank rates? You might think there is no tie-in between money market rates, savings account rates, and CD rates on the one hand, and the finances of a Middle Eastern nation on the other. However, that's where those complex interrelationships come into play.
The worst-case scenario is a second round of credit crises which could put the solvency of some banks in danger once again. More likely, though, is the reaction that was seen in the bond market when the news broke: fears of economic weakness sent interest rates lower. If bank rates follow suit, the crisis in Dubai will have joined a long list of factors driving those rates down this year.
Source:
US Treasury Bond Rates • Yahoo! Finance: http://finance.yahoo.com/bonds
Stevenson Jacobs • Dubai crisis jolts markets, but early fears ease • Nov 27, 2009 • Yahoo! Finance: http://finance.yahoo.com/news/Dubai-crisis-jolts-markets-apf-500325276.html?x=0&sec=topStories&pos=2&asset=&ccode=
