Is this it?

zoom

How then, in Woertz's view, will the global economic landscape look in three years? He hesitates for a moment, collecting his thoughts, and then says: "Well, there are two possibilities. Either massive defaults and depression, not recession, but depression.

Or hyperinflation. Either they have to let assets and institutions go bust, or they have to print money. I am talking worldwide."

There's more: "It's a protracted crisis.

I mean, if the companies are bust, and the state is bust, then either the people engage in civil war, or they find peaceful, regionalised forms of..." his voice tapers off. "Hopefully it will be on a higher level than subsistence and bartering."

"You know," he continues, "I have never believed in this whole de-regulation and neo-liberal growth model. At the same time, I don't expect the return of the strong social-democratic state of the sixties and seventies. That's gone. The state doesn't have the regulatory power anymore. It has lost it to globalisation."

All of which begs the question, how is the Gulf poised to get through what lies ahead? If there is one place on Earth with pots of money and growing economies, surely the Gulf is it?

Woertz nods. "The real estate and project finance markets will get hurt, but as long as oil prices do not collapse, it is relatively safe, yes. There is a good buffer because some sovereign wealth funds have a lot of money, and they might spend it on domestic concerns, as the Kuwait Investment Fund has announced recently that it will.

"The GCC states have some potential to weather the storm, no doubt about it. Mind you, the oil price is now at around $90 per barrel. The correction since July has been pretty steep, but it is historically a high price and they are making good surpluses. If it goes below $70, several countries will become nervous, because the region's budgets are based upon it remaining above $50.

By comparison, in Venezuela, the threshold is $94, so they are already nervous now. Iran is also feeling the pressure. I think they have budgeted for about $55. The UAE is more like $45, so they are relatively comfortable."

So, then, what we are witnessing, if Woertz is right, is the death throes of capitalism. Given that it is widely accepted that communism failed and died two decades ago, what is the alternative?

Woertz seems phlegmatic. "What is communism anymore? What is capitalism? These are just words. Look at China; we have an officially ‘communist' regime engaging in state capitalism there.

I think these concepts, ‘this is capitalism,' ‘this is communism,' have run their course," he says. "The alternative? I don't know. There will be debates. The whole free market ideology is dead, although I don't see Keynesianism returning."

Is there no way to avert the downturn? The US is trying desperately to stop the rot. It has only recently, amid much fanfare, put pen to paper on a deal to inject $700 billion of state money into the hole created by all the bad debt. But is it a big enough plug?

"It is certainly too little," Woertz says. "It is like the current Iraq war. At the start, they said it would cost $50 billion. Now, with hidden costs, it will cost $3 trillion.

"When Rumsfeld was asked at the time if it might cost one hundred or two hundred billion, he said: ‘No way! Baloney! How can you even think that?'

Now, the official spending is already beyond $700 billion, but when you take into consideration the hidden costs, and the lost opportunity costs, it is more like three trillion, as Nobel Laureate Joseph Stiglitz has pointed out. For example, the paralysed veteran. You have to pay his healthcare for the rest of his life. That doesn't appear as a cost of the war, but it is.

And he is an opportunity cost, because this guy could have led a productive life. Now he is a burden. What I am trying to say is governments tend to underestimate the costings."

So, then, how to make money while the economic sky is falling on our heads? In times of financial uncertainty, gold is always a safe bet, so much so that its price can often be seen as a barometer by which to take a reading of the times.

In fact, the price of gold is another thing that Dr Woertz and the Gulf Research Centre have been correct about in the past. In 2005, the GRC compiled and published a report (‘The Role of Gold in the Unified GCC Currency') on the metal with which to advise GCC central banks. The price then was around $400 an ounce. The report advised central banks to buy gold, thereby diversifying their currency reserves.

Today the price hovers around $880. "I don't see any reason why that [the recommendation to buy] doesn't continue to hold true today," Woertz smiles.

Where does he think the price will be in twelve month's time? "$1300 to $1600," he says. "It hasn't really picked up yet. I would expect it to explode at some point. It is hard to predict when, but I don't think we will have to wait two years for it."

Are there any other ways to benefit from the current downturn? "At the moment it is not about return on capital. It is about return of capital. If you can preserve your purchasing power, you are a happy man," he says.

Cheery stuff. One final question: how long will all this last? He shakes his head. "Well, recessions go by, but a depression is structural and protracted. The last depression (1929) lasted a decade, and then it needed a war to finish it. The depression was only overcome by the spending on the war. Hopefully we can avoid that this time."

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM