Walton Brown without fail misses the salient issues and it’s an embarrassment to have him publish in our daily newspaper. This week he’s missing the point on government austerity.

The lesson for governments is simple: Unless you have your own currency (USA, Japan, UK) then you can’t spend more than you make for very long. Austerity is inevitable for these European countries just like it’s inevitable for Bermuda. For us in Bermuda, here’s why:

The PLP has increased spending far more quickly than income has increased. THAT is why Bermuda has to cut spending, and yes, that will hurt the governing party’s political chances and rightly so if it’s the PLP. They put us into this mess.

Anecdotally it seems that the Department of Immigration is continuing to deny work permits to foreign revenue generators and so we’re likely to see Bermuda’s economy to continue to shrink. I had hoped that the damage from term limits, but it seems that the government is keen to continue to damage Bermuda’s economy.

Worth a read http://bdagoodgov.org

So today we learn that tourism arrivals were up 12% – a jump in the number of cruise ship visitors alone. The thing is that we should feel this in the economy, and yet the continued implosion of Bermuda’s economy and suffering of the working class only shows to illustrate what folly it was to invest heavily in boosting the headline numbers through cruise ship visitors. At least new tourism minister Wayne Furbert isn’t following in his predecessors’ footsteps and loudly proclaiming this to be a huge victory, especially since next year will undoubtedly show a large drop thanks to cruise lines cancelling cruises.

I’ve updated the air arrivals graph with this new data.

Amazing that it has been almost 5 years of blogging.

Been playing with some data. Special thanks to Denis @21 Square.com

In 2004 HSBC Bermuda CEO Phil Butterfield stood in front of a group of employees and proudly and sweepingly announced “we have never lost money on mortgages in Bermuda” as he justified the reduction of mortgage lending standards.

One of the huge highlights of the financial crisis is the current inevitable insolvency of European banks. To put it simply, the banks were allowed to pretend that debt issued by countries (Greece, Portugal, Italy, Spain, etc.) was risk-free and had no chance of loss. So the banks bought that debt and financed government deficits – we now know that debt was not riskless and if European banks lose value in their loans to national governments then they will fail. Normally governments step in to backstop failing banks, but of course governments are the ones with the original problem… etc. Large scale bank failures are fatal to an economy. Utterly fatal.

Hidden away in the BMA’s January banking report is this scary little chart. The numbers themselves are not especially scary given Bermuda’s banks relatively low leverage, but the trend certainly is worrying.

What will it take to induce bank failures in Bermuda? We know that our government debt is very risky and with continued PLP management a default appears to be almost inevitable and with that default any ability for the government to act as the lender of last resort will be gone, the economic equivalent of operating without a net in an increasingly risky economic performance.

One thing is for sure – with the budget deficit becoming critical and the PLP still showing no managerial competence to lower expenses the only place they have to cut is going to be Civil Servant’s salaries. The unions are going to have to be innovative indeed.

I just don’t get it.

The Premier did elaborate on the rationale for seeking a Central Bank for Bermuda during the briefing.

Currently, she said, the lender of last resort is the Government of Bermuda.

“That’s why when we had a situation with one of our local financing institutions we had the government give that $200 million guarantee,” she said.

“I think that every country is looking at where they can be more protectionist of their taxpayer and also not being held accountable for the faults or the excesses of others.

“For Bermuda it’s a coming of age to at least have those discussions. And also look at what are our options. It could be in Europe, it could be in the US but it is a reserve, separate, over and above of what we have.”

I really want to hear more about this. I mean, Bermuda doesn’t really have its own currency so what other lender of last resort would there be? Bermuda had the opportunity to create a sovereign wealth fund 2003-present but instead the government threw financial management to the wind and we’re upside down to the tune of $1.2+ billion.

To top it off, the taxpayer is being held accountable for the faults and excesses of the PLP.

Bermuda’s economy may start growing again soon (if it hasn’t already). Most of the damage from Term Limits has happened and so now we’re on to the flux between regular business growth and the government induced hardship.

I think it’s clear now that if the PLP are re-elected then the Bermuda Government will be on its way toward default on its debt. They have had a debt problem since 2004 – even they have recognised it at this point but have not been able to do anything about it. The rating agency downgrades will only come long after the real damage has been inflicted.