Is this it?

Damian Reilly talks to Dr Eckart Woertz, Economics Programme Manager at the Gulf Research Centre, about how far reaching economic global uncertainty could prove to be.

Two years ago, economist Dr Eckart Woertz, in a telephone interview, told me there were really two ways to buy gold. You could buy paper gold, he said, that is gold held in a bank and represented by a piece of paper.

Or you could buy actual gold, gold you can stash beneath your bed, and polish up to use as a shaving mirror, should you so wish. His advice was to buy the latter, "because when the banks start collapsing, paper gold will become worthless."

After the interview, I gazed at the telephone. This man is dramatic, I thought. Banks don't just go around collapsing. Nick Leeson may have done for Barings, but that was extraordinary. What does he think this is? 1929?

Of course, he doesn't look so dramatic now. Prescient, is what he looks.

Dr Woertz is Economics Programme Manager at the Gulf Research Centre (GRC), an independent and non-partial think tank, founded in 2000 by Abdulaziz Sager, a Saudi businessman.

The GRC not only advises administrations, financial institutions and companies within the GCC, but also visiting diplomatic delegations and embassies.

Tucked away in a quiet corner of Dubai, the atmosphere inside is wonkish and hushed. Academics sit in rows working quietly. Bright eyed men wearing bowties - sartorial code for brainy - flit about the place.

Dr Woertz, smart in a pale grey pinstripe suit, talks with his arms folded tightly across his chest, somehow denoting confidence rather than defensiveness. He is immediately engaging and friendly, even if what he has to say is terrifying.

"It's the end of the world as we know it," he chuckles. "The whole free market crowd has run its course. Now, they are only ridiculous, in two years, they will be dead. As an ideology, it doesn't serve its purpose anymore. And the US is now nationalising banks faster than Hugo Chavez!"

We're talking, of course, about the global economic news, the collapse of Lehmans et al. These are extraordinary times, everyone knows that now, but is he serious? Are today's events the inevitable terminus for the deregulated financial conditions so championed by recent Western administrations?

"For sure. I mean this whole free market talk and deregulation, and the idea that markets are self-regulating and self-healing, the idea that we need to deregulate them, and when they have run their course that everything will be fine. Believe me, in three years this model will be dead."

So how has it come to this? And how did Woertz manage to predict it so accurately?

He blinks. "This is not something that has happened overnight. We have been building up to this for twenty or thirty years. It has exploded over the last decade or so. But, basically, since the 1970s you have had growing US trade deficits that increased massively in the middle of the nineties.

It started in the Clinton years and then Bush really pulled out all the stops, and America are continuing to pull out the stops."

If national consumption outpaces national production, the negative balance then has to be redressed through borrowing. The US, with its national debt of $9 trillion, has over the decades borrowed heavily from Japan, China and also Europe, particularly Germany.

With oil prices today so high, as they were in the seventies, flush Gulf states have once more too become what Woertz describes as "important pillars of this whole US debt financing."

There have been many cheerleaders for the laissez-faire economic conditions that have prevailed for the last three decades, but none twirled his pom-pom with quite such fervour as did Alan Greenspan.

It is somewhat ironic, then, that the former Fed chief now tours the world, lucratively, telling whomever will listen that this crisis is a once-in-a-hundred-years event, and that we are still only at the beginning.

At the mention of his name, Woertz says: "Alan Greenspan will not go down favourably in history, that is for sure. They loved him in the eighties and nineties when he opened all the spigots. And now they curse him because they have to pay the price."

Is Greenspan correct, though? Are the cataclysmic events of recent weeks only the tip of the iceberg? "Yes," comes the
answer. "This is really a structural problem of capitalism, the crisis of the middle class that needs two jobs or starts borrowing.

"Why was there so much debt? I am talking mainly about the middle class in the US, but the new middle class in China and other emerging markets, they are all depending on export led growth, which is, in the end, deficit-driven consumption spending of the middle class in America and Europe. If that stops, your whole Chinese and Indian middle classes will go up in smoke."

Hang on. Isn't it meant to be the growth of the middle classes in places exactly like India and China that is going to get us all out of this sorry mess?

"I am not so sure whether India is not a little bit overrated," Woertz says. "When people mention India and China at the same time, I am not so sure. India has a negative current account and they face enormous pressure from Chinese competition in manufacturing goods.

Or the software industry, how many people in India work in this sector? Two million? Three million? Let's say, for argument's sake, that it is seven million. But what are the other 1.1 billion doing?"

What then for the European economies? Surely the European countries with historically more mature and tested economies will emerge eventually, damaged but essentially intact? What, for example, is the prognosis for Britain?

Is that a smirk? Woertz, it must be said, is German. "Britain is doomed," he says matter-of-factly. "Britain is probably one of the largest losers of the whole thing.

Because they have turned the whole country into a hedge fund without the possibility to ‘short'."

He is laughing now. "The country is de-industrialised. Tell me one industrial company in Britain? I mean, everything has either gone down the drain or been bought by foreigners.

A large percentage of the GDP is produced on this one square mile which is called the City, the financial district. That share has diminished. The oil production is declining rapidly and the real estate market looks ugly.

So what is left is arms trade. In the arms industry they have an international standing still. And a certain military role. The sick man of Europe? Well, the whole of Europe is pretty sick, and the deficit ridden Mediterranean countries face very big problems, particularly Spain, Portugal, Italy and Greece."

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