We depend on foreign earnings because the Bda dollar is worthless

WEDNESDAY, NOV. 16: I was accosted by someone who challenged my oft repeated assertion that Bermuda thrives or shrivels according to the amount of foreign exchange that crosses our border, arrives on our shores, and wends its way into our pay packets, bank accounts, and pockets.

I sought to explain, but his eyes glazed over and he later stalked away still muttering that I didn’t know what I was talking about.

Just for the record and to either regain or maintain a grip on reality, I re-thought the whole thing. I re-thought that Tom Wadson and his farmer mates — altogether — produce only about five per cent or thereabouts of the food consumed by us 64,000 residents.

Danny Faries and his mates hardly go fishing any more, and there’s a bloody great — mostly empty — car park where the Bermuda Bakery used to create the smell of mixed, rolled, and baked-in-Bermuda Bermuda Bakery bread.

Hardly anybody makes clothes anymore. It’s hard finding wool with which to knit and few people seem to know how to knit anyway. Fixing things nowadays is mostly a matter of ‘buying a new one’ or replacing some component with a specially ordered part.

All-in-all Bermuda is 98 per cent dependent on stuff and food and clothes and oil and parts from foreign lands that lie somewhere past North Rock — out in the great foreign; where foreigners come from. That means that Bermuda is 98 per cent dependent on foreign exchange.

So what value does our pretty Bermuda currency have? Beyond North Rock, our Bermuda dollar is worth zilch. Don’t believe me? Try this experiment. The next time you go out to the great foreign, do not take your credit card or any US or UK cash. Instead, take $2,000 worth of Bermuda dollar $50 bills. When you pay for your $25 taxi-ride in from the airport, just give the driver a Bermuda $50 bill and tell him to keep the change.

Then watch and listen to the action. If you survive that encounter, go quickly to the nearest Walgreen’s and pick up a big bottle of 1,000 headache pills — because by now you’ll have a humdinger of a headache. At the counter, offer another Bermuda $50 bill as payment — and again, watch the reaction.

This time I’ll wager that you’ll hear sirens and you’ll feel the cold steel of police handcuffs closing on your wrists.

Beyond North Rock, our Bermuda dollar is valueless. In Bermuda our Bermuda dollar has value only because the Bermuda Monetary Authority maintains a reserve of foreign investments that backs every Bermuda dollar that is in circulation.

Because of that, Phil’s bank, Brad’s bank, James’s bank will honour all our Bermuda dollars. Although we use Bermuda dollars, we really transact in the equivalent of US dollars. The Bermuda dollar merely camouflages the transaction.

Bermuda’s ability to buy that 98 per cent from overseas depends entirely on the flow of US dollars across our borders and into our pockets. Just as a hibiscus flower closes up at night, Bermuda will close up if that inwards flow of US dollars (and Euros, and Pounds, and Yen, and ...) comes to an end or shrivels too much.

Shrinking footprint

Right now, out of every $100 inflowing foreign dollars, International Business generates up to $87 of that inward flow. Tourism currently brings in about $12. Government, believe it or not, actually brings in about $1 from its Shipping and Aircraft Registries.

Our national economic problem now is that IB’s Bermuda footprint is shrinking. It’s now down about ten per cent from where it was in 2008 and tourism has not surged up to compensate. This has resulted in a diminished inwards flow in the total volume of foreign exchange. This diminished inwards flow has occurred in a normal global setting where global prices and costs have continued to rise. Translated? Our need to expend foreign dollars to maintain our 98 per cent importing need has risen. The classic double whammy!

The other thing that I needed to explain to my muttering acquaintance was that within Bermuda, there had been a drop in the resident population. In 2008, Bermuda’s resident population probably peaked around 68,000. But, by the time the Census takers turned up in 2010, that population had fallen to the 64,186 that they counted.

So, in 2011, fewer people earning, pocketing, spending those foreign exchange dollars. ‘S’happenin’? We lot’s in a mess’.