Return of realism

I'm just restarting the engines after a couple of weeks of vacation, but in the meantime I'd suggest reading the Chamber of Commerce's August newsletter which addresses the impact of the massive and rapid build-up in debt, mostly to cover current expenditures in the past several years.

Traditionally, the Government has borrowed to partly fund capital projects (the balance of the cost was provided from the surplus on current account) and in periods where the costs were small, the borrowings were repaid. Thus throughout the period from 1970 - 1990 the borrowings were repaid usually within 10 years.

The last time that Bermuda had zero public debt was in 1991. From 1991 to 2004 it grew to $160m; from 2004 to 2008 it increased to $345m and now it is projected to be $900m by next March. This recent build up has not been created by capital spending alone but because the total expenditure on current operations has exceeded revenues. Thus all debt service costs and capital expenditure have been borrowed in recent times.

This is akin to not paying the minimum amount on a credit card statement and then continuing to rack up new purchases.

This situation will not be solved by an incremental rise in Government revenues as the economy recovers because all of these increased borrowings create their own demands for debt servicing. To continue the analogy above, a bonus or other extra income will not solve the credit card problem if you continue to live beyond your means; it requires a change in behaviour.

Economists term this situation a "structural deficit" because the root causes are not found in the level of economic activity but in the imbalances between revenues and expenditures.

I get a real sense that we're going to see a return of realism to Bermuda politics after the last 4 or 5 years of hyper-politicisation and vanity tenure of the outgoing Premier.

The PLP, both in candidates for Dr. Brown's seat and the front-running Paula Cox for Premier continue to exhibit little in the way of introspection or a changing of the guard. It's business as usual, the same old faces and the establishment digging in for another round.

On the periphery you have Terry Lister and Dale Butler who both seem like longer shots but are making noises that run so counter to mandatory PLP dogma that it's hard to see where it gets them. Both appear to be running campaigns aimed at a national audience and hoping the PLP decides to acknowledge the prevailing national mood of unease and concern for our social and economic future.

At best I suspect it may result in a moderation of the PLP who have become very radical during their Brown years, led by manufactured controversies and confrontation and wildly disingenuous distractions.

That doesn't bode well for Bermuda in the short term, but I do suspect that what we'll see is an increase in involvement from the many young, realist, professional types. They've sat on the sidelines for years in disgust but are coming to the realisation that we're running out of time and it's their future that is being thrown away.

The next generation must step up and start undoing the damage of the past decade. Tragically, after a decade of rapid economic expansion and budget surpluses due to a well positioned economy that the PLP inherited (and some good fortune in two major catastrophic events), Bermuda finds itself in a huge debt position with escalating violent crime, unemployment and declining investment.

It really is a lost decade.

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