‘Black Swan’ Author Says Dubai More Robust Than U.S.

October 04, 2010, 5:12 AM EDT

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By Camilla Hall

(Updates with quote in second paragraph)

Oct. 4 (Bloomberg) -- Nassim Nicholas Taleb, whose book “The Black Swan” described how unforeseen events can roil global markets, said Dubai’s economy is more robust than that of the U.S. as its debt problem can be “controlled.”

“Even if you take perhaps the worst of emerging markets, a place like Dubai, you realize Dubai is more robust than the United States,” Taleb said at a mutual funds conference in Manama, Bahrain today. “Dubai has been borrowing to put buildings on postcards. It can stop that, but America needs to borrow just to open the doors in the morning. That’s why I’m not comfortable with the United States.”

Prior to the collapse of Lehman Brothers Holdings Inc. in September 2008, Taleb warned that bankers were relying too much on probability models and were disregarding the potential for unexpected catastrophes. His book labeled these events black swans, referring to the widely held belief that only white swans existed until black ones were discovered in Australia in 1697, and said that they were becoming more severe.

“Dubai, they’re not depending on debt, it’s not a chronic debt, it’s not like the American person who has this dependency on debt and has been building it since the 80s,” Taleb, a former derivatives trader, said. “It’s not a great model but it’s more robust than the United States, simply because their debt situation can be controlled a lot better than the U.S.”

Repay Debt

U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, Taleb, said in Montreal on Sept. 24. Governments globally need to cut debt and avoid bailing out struggling companies because that’s the only way they can shield their economies from the negative consequences of erroneous budget forecasts, Taleb said then.

Dubai has faced a debt crisis since November when Dubai World, one of its three main state-owned holding companies, said it would delay payments on about $26 billion of debt. The second-biggest of seven states that make up the United Arab Emirates and its state-owned companies have borrowed $109.3 billion, according to the International Monetary Fund estimates, as the emirate strove to transform itself into a financial, logistic and tourism hub. That is 133 percent of its gross domestic product of $82 billion in 2008, as reported in its bond prospectus published last month.

Obama in September proposed a package of $180 billion in business tax breaks and infrastructure outlays to boost spending and job growth on top of the $814 billion stimulus measure enacted last year. The U.S. government’s total outstanding debt is about $13.5 trillion, according to U.S. Treasury Department figures. That is 94 percent of its 2009 GDP of $14.3 trillion, according to Bloomberg data.

--With assistance from Arif Sharif in Dubai. Editors: Chris Peterson, Peter Branton
To contact the reporter on this story: Camilla Hall in Dubai at chall24@bloomberg.net
To contact the editor responsible for this story: Edward Evans at Eevans3@bloomberg.net