UBP should not give in to the BDA’s demands

The Bermuda Democratic Alliance's strategy hasn't worked so why are they trying to impose it on a merger with the United Bermuda Party?  They split from the UBP on the basis that a new name and separation from the UBP legacy would solve everything.  This split attracted few PLP converts and they failed to gain a significant foothold over the UBP in the by-election.  Their savior strategy failed, plain and simple.  So, why is it that they're now trying to impose this failed strategy on the UBP?  How is it that what didn't work for them will somehow make a difference with the UBP included?  It won't.  The issue with the opposition and our parties in general is the same as it has always been: Trust.  We don't trust our politicians.  The UBP would gain the most by regaining trust through transparency and a real commitment to governance.  Subsequently, one legacy they shouldn't cast aside is their proven ability to properly manage the economy.

The BDA are trying to impose their failed departure strategy on the UBP.  

One BDA source said yesterday: “The negotiations have been complex and have now faltered on a key point: the UBP’s inability to truly commit to the required drastic and immediate changes we need for this new entity to be a success.

“The UBP must abandon as many of the former faces of the UBP as it can possibly afford to let go. Right now it’s at a bit of a stalemate.

The whole premise for the BDA's "A Better Way" was new faces and abandoning the UBP's legacy.  It didn't work.  Why in the world do they think it will make a difference on a larger scale?  Subsequently casting aside former faces of the UBP may well guarantee you cast aside some of the best financial minds.  

The biggest issue facing any party in Bermuda today is a lack of trust.  The both the UBP and the PLP have lost the trust of a large percentage of voters while the BDA never did anything to gain it.  If the UBP wants to win the next election they don't need the BDA or their rediculous demands, they need to focus on doing what it takes to build trust with the electorate.  This means embedding a framework for transparency and open democratic governance within the foundation of the party.  Without some changes, new faces or not, they will gain little traction.

The only other saving grace for the UBP may well be that as times grow more tough, people will be more ready to put them back into power to do what it takes to right the economy.  Colonial legacy or not, noone wants to vote themselves into poverty.  Even union bosses admit the UBP knows what they're doing with regards to the economy while the PLP have fails us.  In today's Royal Gazette:

Union boss Armell Thomas yesterday said the Progressive Labour Party has been “living off the coat-tails” of the United Bermuda Party Government’s financial prudence.

This is a significant move.  It validates the one belief widely held throughout the Bermudian community, the UBP can manage the economy.  The UBP may be encumbered with a poor legacy with regards to social issues and ties to our colonial past, however they also have the strong legacy of knowing what they're doing when it comes to finance and our economy.  Giving into the BDA's demands would not only be foolish, it'd encourage throwing away the UBP's one solid strength for a failed strategy.

 

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Initial thoughts on the budget

Having taken a cursory glance at the budget it appears to be an improvement over previous years in that there are some attempts to cut spending, though it is concerning that it seems to rely heavily on a recovery to resolve our problems.  Premier and Finance Minister Cox should be applauded for managing cuts of $90 million, it certainly couldn’t have been easy.  Unfortunately though, it is not going far enough to balance the budget, let alone begin resolving our debt woes.  We can only hope their prediction for a recovery will be correct, though we can be forgiven for being concerned given the government’s track record for predicting the economy.

The first tidbit is the title of the budget “RESETTING THE DIAL!”.  It is an interesting choice as it seems to suggest that the theme of this budget is to buy time.  It does not appear to be an unfair assumption as there is much mention of aiming to reduce spending and aim for a recovery to perhaps balance the books.  The only question is, are we on track for one? 

“You will see that the fiscal contractionary path we have chosen will not only help Bermuda to meet the immediate challenges it faces but will also pave the way for what I predict will be the beginning of a gradual recovery in 2012.”

Recovery predictions are worrying primarily because so few managed to see that our economy was overheating and predict the potential for a recession in the first place.  One statement suggests hope that the US recovery will likely contribute to our own, though there are concerns with this.

Compared to the bleak outlook in Europe, the United States has shown no desire to halt its stimulus spending. According to some forecasters, this will provide substantial support to the American economy for the next two years. As a result, the US is likely to transition from a sluggish recovery into a modest expansion. This long-awaited development is anticipated to become evident by the end of the first quarter of 2011. In all likelihood, the Bermuda economy will benefit from this trend but probably not until next year at the earliest.

The issue with the stimulus driven US recovery is that eventually it will drive up inflation.  We mentioned only last week concerns about how much food commodities have risen and their potential impact.  A concern is that eventually this will trickle through to the rest of the economy and start creating widespread signs of inflation.  Further it will likely impact global growth as food prices globally are much more sensitive to commodity rises.

Why does inflation matter?  When inflation rises, the US will likely have little alternative but to move to raise interest rates and put a stop to quantitative easing or “money printing”.  If the US economy hasn’t gotten to standing on its own by that time then we’re likely to see another recession.  If inflation becomes a concern, they may have no choice.  Worse, if we see the combination of high unemployment and inflation we could end up in a period of stagflation, the only proven solution to which was a rapid rise in interest rates to extreme levels. 

Why are we covering all this?  Bermuda’s cost to write new debt this summer was quite high despite record low interest rates.  Imagine what our debt costs could rise to when those underlying rates rise?  It is wholly concerning that rather than aiming for a budget surplus to work on paying off our debt, we’re incurring more.

So, those are our initial thoughts.  There is likely more of the budget to review, especially based upon what the revised numbers for 2010/2011 tell us, though that will have to wait for another time.

Lunch with the Premier

Today I had the opportunity to join a handful of fellow young Bermudian professionals in having lunch with the Premier.  It was a rather stark reminder of how distinct Premier Cox is in her leadership style from that of former Premier Brown.  

It was a very small group, the conversation was informal and the Premier made a special point to not only encourage people to speak freely but also to encourage opposing views and constructive feedback.   She invited us to speak of issues important to our generation and spoke well of her appreciation for the many aspects of our economy, local business, tourism, international business, taxation and its implications.  She encouraged a balanced view of the many aspects of our society and explained the many implications of one policy to the next on the various sectors of our society.  She stressed the importance she places on not killing the goose that lays golden eggs while balancing the desire to determine what can be done to ensure we prosper over the long term.  She certainly lived up to her reputation as a more balanced and inclusive leader keen to not only hear but also listen and respond to all views.

It is hard not to be left with many thoughts to review following such a meeting.  Perhaps in the coming days there shall be time to share some of those thoughts as well as some on the upcoming budget.

 

Next thing to watch? Food costs

Those who haven’t been tracking agricultural commodities for the last 6 months should pay attention to the rapid rise in prices.  We’ve seen a return to 2008 price levels due to weather disruptions of crops around the world and ever lower stockpiles.  The UN Food and Agriculture Organization puts the food price index at an all time high, beyond 2008 levels.  It is becoming increasingly likely that food inflation is on the horizon and Bermuda needs to take note as this could further exasperate our recession.

Take corn futures for example, they’re up massively since the summer time and if you weren’t already aware, corn and other grains are probably a major component in just about everything you eat.  Grains are typically used as livestock feed, to make cereals and breads and a host of other foods.  Check the labels on what you’re eating, you might be surprised at the amount of hidden corn in your food. 

So why haven’t food prices increased massively yet?  Well, they have.  The recent revolutions in Egypt and Tunisia?  Many point the finger at food prices as an instigator.  It can take months for price increases at the commodity level to trickle through to the vendors on to you.  Be warned, it’s starting to happen.  Eg:  Sara Lee to raise prices again on higher commodity costs, Kellogg Pushes Price Increases, Kraft says more price increases ahead

You can be the master of debt or it can be the master of you

Unfortunately, few understand debt.  We are meant to think that we do but the current recession proves that most don't.  Take the many Americans convinced they were doing the right thing.  House prices apparently always go up so they took out mortgages and renovated, bought a bigger home or got that fancy toy they've always wanted.  They thought they'd mastered debt, until the tide changed.  Their homes lost value, many lost their jobs or had lower wages and suddenly their debt became far more of a burden than the enabler they had thought it would be.

Thus, when individuals like Senator Walton Brown proclaim our debt as "akin to a family borrowing money to purchase a home", you should take note.  What are we getting for our debt?  Will it earn more than it costs or will we wake up one day and realise we've not only made poor investments, but our home is worth far less than it once was.  Fancy statements comparing our debt to GBP to that of our American and British peers are like comparing a battleship to a rowboat.  There is no comparison, especially if a storm is on the horizon.

 

Trust the fox selling the hen house?

There have been no shortage of things to be written about, quite unfortunately though, I really can’t be bothered and for the most part have tried to avoid local politics and writing all together.

None the less, the ridiculousness of a recent article on the housing market has me wanting to reiterate that one should never listen to real estate agents.  Susan Thompson of Coldwell Banker was recently quoted as promoting the usual buy now spiel:

Why wait and ‘try to time the market’ only to discover that you missed it and prices are instead going up?  Now is a great time to buy

Do you trust real estate agents on when to buy a home?  Did you so quickly forget the July 2008 claim: “Now’s a great time to buy a home”?  If so, I have a bridge to sell you.

Hopefully someone out there didn’t listen to Ms. Thompson and read what we had to say about the market back then:

What happens if you combine a weakening global economy with off-shoring of local jobs and a rapidly softening local housing market?

The media council

Though it is doubtful anyone actually noticed, this blog was no longer listed as among those participating in the media council which was officially launched today.  This is by no means an indication that this blog does not wholly applaud and encourage the media council and its efforts, however, in the time leading up to the launch, this writer concluded that participation of this blog in the council itself would not longer meet the aims originally intended.

The original intent in supporting the media council was to set a precedent encouraging online opinion writers to voluntarily uphold its proposed principles.  As a secondary notion, I felt it valuable to participate as a means to avoid a situation where the government felt blogs should be regulated and chose to use the non-participation of blog sites in the council as a reason to move to regulate blogs. 

Quite unfortunately during the process of the founding of the media council it was decided that all minor media outlets, more specifically small websites and blogs, should be required to pay a minor fee of $100 a year.  This fee was determined as a token of support as well as a means to help fund any investigations undertaken by the council into the blog’s conduct.  While entirely understandable that such a fee should exist, it ran counter to the original intent of joining the council in the first place.

As Jonathan Starling suggested in his blog, it is quite a stretch to consider personal opinion sites, aka blogs, as falling under the guise of traditional media.  As he suggested, “our sites are little more than glorified letters to the editor, just our opinions and reactions to developing stories and events”, and that most “do not claim to be media in the traditional sense”.  Thus, it is quite a leap to even associate the Media Council code of conduct with opinion blogs.  Thus, Jonathan suggested his hesitance towards encouraging regulation of blogs while I took a stance that voluntary regulation is better than forced, at least until there was a fee involved.

As suggested earlier, the intent had been to encourage a higher standard held among the local online opinion writing community and ensure that freedom of speech could remain protected through voluntary participation in regulation.  Unfortunately however, the issue that arose with the introduction of the fee is that it runs counter to the original intent in that it effectively could set a precedent that would put a price on freedom of speech should government move to require bloggers to subscribe to the media council.  This unfortunately ran counter to the original intent and as such, I opted to retract my involvement.

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