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Get a pretty Bermuda $2 bill. Holding it carefully by one corner, light a match and apply it to the lowest corner. Put the burning bill onto a fireproof plate. Watch it burn.

That pile of ashes represents the value of that pretty bill when it goes outside of Bermuda. If, however, any money-changer did actually take a Bermuda $2 bill - and it's a big 'if' - he would discount it heavily and might give you perhaps 40c (U.S.) or 20p (U.K.).

Bermuda exists as a successful and wealthy country because various entities and persons who are in Bermuda earn foreign exchange - other people's money. U.S. dollars. U.K. pounds. E.U. Euros. With that foreign currency, we buy everything we import - that is about 99 per cent of all that we eat, drink, wear, drive...

Bermuda has always had its own currency. Because it was a good tourist gimmick, we designed pretty money. But it only has value because when we deal with the outside world, we convert our pretty money into everybody else's currency. That is why you pay Foreign Currency Purchase Tax.

Bermuda's total foreign exchange earnings are in decline. The peak year was 2008 when International Business brought in around $1,812,000,000 - and that included the contribution of business visitors. In 2009, the same foreign currency earning process brought in only $1,762,000,000 - or about 3 per cent less than in 2008.

IB currently brings in about 90c out of every foreign dollar earned. Tourism brings in a dime.

For 2010, the Minister for Finance is projecting about 1 per cent growth [Budget Statement - page 2]. That translates to the same amount of dollars/euros/pounds coming in as in 2009 - or up to $18m (that's 1 per cent) more. Remember though, that IB in 2009, downsized by 328 jobs [6.9 per cent of IB jobs as reported in the National Economic Report 2009, page 4].

Everything hinges on the amount of foreign currency coming in. The trend is declining. Economic activity here will therefore decline. Foreign currency is like the gas in our tank. Less gas, can't go as far.

That $39.1m annual interest expense on National Debt [Budget Statement, page 30] means that more than two cents is shaved off every foreign dollar the instant that dollar arrives. That two cents goes straight back out as a Government interest payment. Effectively, every foreign dollar that comes in will now be a 98c dollar. That two cents bites!

In this Budget [Budget Statement, page 25], out of this shrinking or non-growing pool of shaved-off foreign dollars (with each dollar having only 98c left), Government is extracting $95m more dollars, leaving LESS overall for everybody else.

Our GDP won't grow

Since there are fewer dollars, there will be less overall national economic activity - GDP won't grow. Because of reduced national economic activity, planned Government spending levels will have to be supported by more Government borrowing. More Government borrowing means borrowing more foreign currency. And that will lead to later shaving another sliver off every foreign dollar earned - reaching for three cents. And a 97c dollar.

This will continue into 2011 and into 2012. This will force higher taxes. Higher taxes will push up costs. Higher costs means a demand for higher wages. Higher... you get the idea. Bermuda is now in the classic Debt cycle.

No amount of impassioned or polysyllabic rhetoric changes those processes, facts, and arithmetic.

This Cabinet and this Minister of Finance have screwed up badly. This Budget says that they plan to continue screwing up this year and next. This Government needs to cut wastage, control and reduce its own spending, and get off the debt rollercoaster.

I have explained the how and the why. You and Bermuda will suffer the consequences of inaction. The consequences of inaction will begin to itch this spring. They will be palpable by the summer. By Christmas, they will bite and sting.

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