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Why is the worldwide economy still so shaky?

Only days after governments around the world tempted to call an end to the worldwide recession there is talk of credit crunch part two after the revelation that the Dubai authorities may well need to default on their ever-growing debt pile. It seems bizarre that a relatively small state which has invested substantially to attract overseas investors and overseas businesses is now putting the worldwide money market and worldwide investment market at risk. So why is the relatively small issue in Dubai having such an impact?

As we mentioned in one of our early articles, the issue is not the amount of money involved, while $80 billion is significant it is only a fraction of that spent by the UK government, but more an issue of confidence. As we have mentioned on numerous occasions it is confidence which will bring the UK economy and the worldwide economy out of recession, and it is confidence which will see the boom times return in due course. The Dubai issue has dented confidence and has had a ripple effect across worldwide markets causing investors to step back and reconsider their positions.

It seems almost inevitable that the cost of debt will rise in the short-term which will place more pressure on businesses and consumers and also government budgets around the world. Many had warned that the worldwide economy was based upon fairly shaky foundations and the now it appears that these foundation are starting to wobble.

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