Dubai’s demise and some basic questions about debt

The endless oil-soaked financial Bacchanal known as Dubai, home to air-conditioned ski parks, seven-star hotels, the new headquarters of Halliburton, Roger Federer’s income, and a army of foreign servants supporting a few ultra-wealthy is now officially out of wine, the band gone home, the hangover beginning . It turns out that like so much, Dubai, or at least Dubai World, is leveraged to the edge of its financial capabilities and has ultimately defaulted on the interest payments.

In the streets of Washington and on the Internet, we hear murmurs about the crisis of confidence in sovereign debt, questions on whether Dubai is really a country, really a city-state, really real enough to matter. So many questions about future bond ratings, the effect on gold, a retreat to commodities-backed currencies, the impact on equities. Also, there is speculation on the cause: is it real estate, peak oil, an overestimation of the global ultra-wealthy, the instability of the financial services industry?

In addition to those questions, I have a few basic questions first :

1. How is Dubai any different from the United States, France, or Japan, countries swimming in massive debt?
2. Has debt as a concept somehow morphed? Is sovereign debt really expected to be repaid? If not, are the bonds issued from such debt legal financial instruments, or some form of fraud?
3. How is it that countries basing their fiscal health on debt expect the future to be so much more fruitful, profitable and taxable? Which strategic trends are they seeing to value the future performance of their assets so highly?

Basically, how is it that all these banks, companies, pension funds, and nations can be so extended, engorged on debt? Does anybody run black ink anymore? Why is the future perceived to be of greater value than the present?

I think the answers may be simple. Painful but simple. Better to make money than to owe money.

Now, who is making money out there?