So while most Americans are taking the traditional 4 day Thanksgiving holiday another debt crisis has emerged.  Easy enough for most Americans to miss the news, if only because they are vacationing or shopping.  But this debt crisis involves a company in a foreign land, so most Americans will say "Why should I even care?  This doesn't involve my bank."  That Dubai World looks to be unwilling to repay some of its debt, and will make no payments for 6 months, could be something a lot of Americans simply ignore – if for no reason than they simply can't link it to their work or life.

Dubai World is a very large real estate developer, owned by the Dubai government.  The banks that loaned Dubai World billions were more European than American.  Yet, we live in a global economy.  When things happen elsewhere, they have an impact on U.S. businesses and citizens.

American companies depend upon international banks to make local currency loans for their offshore operations.  And American companies depend upon businesses, and individuals, in foreign countries to borrow money in order to spend on American company goods.  With the U.S. economy in the doldrums, companies that have robust offshore businesses selling to people in the foreign markets have done considerably better than most U.S. focused companies.  But when these offshore banks don't get paid by Dubai World, they have to take write-downs.  And if they don't get payments, the bank's reserves dwindle.  As a result, these banks can't make loans – just like we've had happening in the USA since Bank of America, Citibank, etc. almost collapsed – due significantly to large real estate loan defaults.

Additionally, the U.S. government depends upon offshore entities – banks, businesses and individuals – to buy U.S. bonds.  Without offshore buyers, the U.S. government could not fund its recurring debts.  When a big corporation like Dubai World, part of a government backed with oil money, runs out of cash it causes a chain reaction of people not making loans.  Not investing.  And that can have a big impact on U.S. bond sales.  When the government can't sell bonds it has to increase the interest rate – which spells a worse economy or inflation.  So scared debt investors can have a quick impact on U.S. interest rates – because when U.S. Treasury bond rates go up all other rates, from municipal bonds to commercial loan rates to car loans, have to go up as well.

And this is why everyone needs to know about, and pay attention to, a big real estate developer in Dubai "restructuring" its debt and stopping payments.  In a global economy, the impact will be felt by Americans. 

• This action can further exacerbate real estate price deflation – a major cause of economic weakness and wealth destruction globally.
• If foreigners buy more stuff, Americans who sell this stuff will see lower sales – and that leads to less employment.
• The debt collapse in America is causing huge problems for small and medium-sized companies to stay in business.  European banks trimming their loans will have similar negative impact on smaller businesses in many countries rolling-up to substantially larger population than America.
• Higher interest rates further dampen any American recovery.
• This could lead to less money available for lending in the USA, and a lot of additional lost jobs.

Scenario planning is not about predicting a collapse of Dubai World.  It's impossible to forecast such specific events with any accuracy.  But that doesn't mean U.S. companies shouldn't be spending a lot more energy thinking about global impacts on their business.  What happens by central banks, big companies and even real estate developers around the globe is important.  In prior years, when these collapses happened (Mexico, Korea, Japan) the USA stepped in to stop the collapse from cascading.  But the U.S. government is no longer in position to thwart future declines. 

It's important all companies undertake scenario plans that consider the impact of higher international interest rates, changes in currency valuations, import/export restrictions or tariffs and country-by-country unemployment rates.  Our businesses are increasingly dependent upon offshore companies as our suppliers, customers and investors.  If your scenario plans aren't considering the impact of global changes, like the disaster now happening to European banks, you may well find yourself  wondering what hit you in 2, 4 or 6 months when the impact hits home.