Ignoring the elephant for the mosquito

With the Norwegian Breakaway coming in and people fussing about the timing of a meeting of BIU members, Bermudians seem happily back at the business of buzzing about details.

From long life experience and a broad knowledge of the wider world that we all live in, our behaviour is not unusual.  

Leave the big stuff alone. Sweat the details. Put another way, ignore the elephant in the room while swatting at one mosquito.  

Right now we seem to have a national agreement — which I hope is temporary — between public and government to keep doing that.

In that vein, I was reading Nobel prize-winning Economist and New York Times columnist Paul Krugman’s recent book — End this depression now. 

Zip-reading his writing would give great comfort to those who reckon that I’m a ‘doom and gloom’ writer who only ever sees elephants. If you are one of those, read on and take comfort from Paul Krugman.

Writing about the massive US economy, Paul Krugman said: “If you spend a fair bit of time listening to what seemingly serious people say about the current state of the economy — and my job as a pundit means that I do just that — you eventually recognize one of their biggest problems: they’re working with the wrong metaphors. 

“They think of the US economy as if it were a family fallen on hard times, its income reduced by forces beyond its control, burdened with debt too large for its income. And what they prescribe to remedy this situation is a regime of virtue and prudence: we must tighten our belts, reduce our spending, pay down our debts, cut our costs.

“But this isn’t that kind of crisis. Our income is down precisely because we are spending too little, and cutting our spending further will only depress our income even more.”

All those who prefer mosquito swatting and who are more interested in feeling warm and fuzzy should stop here, because from here on, facts will appear.

Up to that point, for warm and fuzzy Bermudian thinkers, Nobel prize-winner Paul Krugman made sense. But Krugman did not stop there. He continued: “We do have a problem of excess debt, but that debt isn’t money owed to some outsider; it’s money we owe to one another, which makes a huge difference.”

In this sentence, Krugman describes the elephant that squats in our Bermuda room. Krugman doesn’t do so directly. In fact, throughout the book, Krugman never refers to Bermuda or our Bermuda situation. 

But in writing about the multi-trillion dollar US economy, Krugman shows us how our multi-million dollar Bermuda economy is different and precisely how our economy is affected.

Krugman’s key words are here:  “…but that debt isn’t money owed to some outsider; it’s money we owe to one another…”

By March 31, 2014, after Finance Minister ‘Bob’ Richards tacks on his $331 million to the $1,469 million left by his predecessor; Bermuda will have a public debt load of $1,800 million — or $1.8 billion - $1,800,000,000.

All of that $1.8 billion is, or will be, owed to outsiders.

 It’s the fact of owing to outsiders that makes our Bermuda debt completely different from — and opposite to — the US debt that Krugman describes. Inadvertently, the Nobel prize-winner has described Bermuda’s elephant.

The fact that Government revenue will be stuck under $900 million and that this year will end with debt at twice revenue means that our elephant will be monstrous. 

However, like the US debt that Krugman writes about, Bermuda has to pay that debt’s costs in US dollars. 

For 2014 forward, debt interest plus Sinking Fund cost will be around $144 million a year. All of it going to “outsiders”.

The critical difference? The US will simply print more US dollars. Us lot out here must first get US dollars to cross our borders and arrive here. 

After that, and only after that, can Bermuda pay on Bermuda’s massive public debt. This is opposite to the US situation that Krugman describes.

There it is. The elephant.

As from April 1, 2014, that $144 million will increase by another $27 million for a total of at least $171 million annual charges.

Why? 

On April 1, 2014, another elephant enters the room. That is when the KEMH PPP annual payment obligation commences. n