The Middle Eastern financial earthquake from Dubai

A few days ago, I told my colleague that we are only an event away from a double-dip-recession .... the much feared w-shaped recession and recovery. 

I thought that the second dip would result from an event in the Middle East--Iran, or the Israel-Palestine issue, or Iraq.  

But, could Dubai's sovereign default reverse any recovery and slide us down a second recessionary dip?  

What sayeth Krugman?

First, there’s the view that this is the beginning of many sovereign defaults, and that we’re now seeing the end of the ability of governments to use deficit spending to fight the slump. That’s the view being suggested, if I understand correctly, by the Roubini people and in a softer version by Gillian Tett.
Alternatively, you can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation.
Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it.
At the moment, I’m leaning to a combination of two and three. For what it’s worth (not much), US bond prices are up right now, suggesting that the Dubai thing hasn’t raised expectations of default.
Anyway, we continue to live in interesting times.

Horrible times.  If only our collective madness hadn't found it worthwhile to invest a gazillion dollars in crazy developments