Barbados :The Final Collapse - Debt, Credit, Capital & Investment
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved”. Ludwig von Mises 1881 – 1973
During the last administration Dr. Justin Robinson’s was the solitary voice in the Barbados intellectual wilderness that kept warning us about an aggressive national debt expansionism. Our interpretation then was that Robinson did not just mean the increasing debt of the central government and its statutory agencies but more importantly the growing debt of businesses and households. Maybe even the expansion of his primary employer. To us he was talking in the aggregates. Some of us get confused, sometimes, when this quartet of words – debt, credit, capital and investment, are used. In a number of cases and for simplification , all four could represent credit expansion at one or more points in the global, largely homogeneous, monetary systems.
We are disappointed that the ‘voice’ of Robinson seems not be generally available to the public, like before. We have three (3) reasons why we are persuaded that this will widened public understanding. This is what a public academician should be doing, no? First, the expansion of the national debt has continued to be now close to 100% of the GDP of Barbados, having been boosted by the off-balance sheet amounts, as incurred by the former administration to the tune of over I billion dollars, and as mandated by the IMF, was brought to book and the continuing and significant contractions in the economy, and so on. Secondly, Robinson’s own National Insurance Scheme (NIS) has been heavily called upon by this current government to play a larger role in the economy, providing funding to projects in which government believes it has an interest. Projects that would normally tend to attract external investment capital (FDI) – as based on the credit worthiness of foreign businesses and individuals. Thirdly, Robinson might want to speak to the public about the financial performance of the NIS and the impact additional demands from the central government are having on the integrity of the NIS. We are past the point where foreigners are becoming even less likely to use their own resources or mobilize capital to invest in Barbados and, as seen from the last attempt to raise capital on the international bond markets, will be more and more unlikely to risk their money in Barbados. This crisis is deeper than the mismanagement of any one administration. It is the collective misguidance of all the parties, not only political parties, business people too and others.
At the level of households, the credit expansion of previous years largely ended up on the country’s balance sheet and in real estate valuations, as aided by the commodification of land, a central government policy of the OSA regime. This as Barbados is not known to have the kind of housing markets that are responsive to changing demand/supply conditions. Meaning that when once valuations go up they tend to stay up. We are not aware of any instance where a downturn in the local economy was accompanied by a similar decline or any decline in property values. Given, there is some evidence of price stagnation on previous occasions. These forces make it difficult for the self-correcting nature that markets are supposed to be and their ability to attract new buyers at lower price points. But land taxes, water rates and other basic running costs also tend to remain the same as all these factors situate property owners in a vortex. On the one hand they have artificially high valuations supported by high debt-to-equity ratios and on the other, an inability to sell their properties in the near term for what have become, to some buyers, inflated valuations.
At the business level, things are no better. Enter, the Almond Beach entities. They properties had high valuations, were acquired or built/maintained on credit expansion. They suffered from dwindling revenues, working capital depletion and galloping operating costs, in an industry with a largely tired plant. Our suspicion is that the books of the other local majors are no better – high running costs, high property valuations, no access to additional credit, depleted working capital and dwindling revenues. Unlike the household property sector, above, government deemed it necessary to intervene into the hotel property markets to save Almond, for national security reasons, of course. And like the global mass transfer of social security funds and other public goods to private hands, government continues to expand credit to certain property owners. These are the new super citizens! Based on credit which represents the saving of Bajans. Credit which otherwise would represents payments to government for the provision of other social goods/services to the general population. Public goods and services that are to be now dependent on the relative success of people like Butch Stewart. Public goods and services which may be reduced in the short to medium term as a consequence of this re-allocation of capital or tax revenues of the central government.
Also at the national level, the Central Bank of Barbados (CBOB), as lender of last resort and as subject to the mandates by the IMF, would have, at least in the earlier stages, increased its credit to the central government through the printing of money. Justin Robinson also happens to be on the board of the CBOB and must have special real time insights. Insights which may differ from those of the Governor. We always wonder why people like Justin can’t talk to us and possibly give information or additional interpretations of the dominant narrative while still serving. That is a pipe dream in our culture, of course. So we’ll have to wait for a year after the fact to received dated information when real time info is needed most.
But contrary to the advice which Robinson was giving the previous administration, the world nations that control the money supply policies of Barbados continued with their ‘quantitative easing’ for the last seven (7) years, sometimes by different names, but the printing of up to USD85 billion per month, in the case of the United States, was almost addictive. The 'banksters' are currently trying out a ‘cold turkey’ withdrawal or a methadone clinic, we hear. Of course not a penny went to households, like Barbados, and was used by the big banks, like the Butch Stewart deal, to clean up their balance sheets, acquire other weaker banks, engage in high frequency trading and consolidate more and more wealth into the hands of the .001 ‘percenters’.
The boom that took place in Barbados and the rest of the world in recent decades was built on a mindless expansion of credit. Theoretically, predicated on a fractional reserve system but even the ‘rules’ of that dangerously based credit system were thrown through the window. The ‘banksters’ then gave us a portfolio of new financial instruments. These included, liar’s loans, CDOs and hundreds of trillions of dollars in all types of other worthless derivative instruments, which bore no relationships to standard mark-to-market requirements, discovery requirements or other standard credit requirements. This is the cesspool of credit from whence the capital was found to fuel the irrational spike in real estate property prices in Barbados over two decades.
Therefore the domestic credit of households, businesses and government in Barbados has grown exponentially. Some would say there has been a growth in savings as well but we will make the rejoinder that the inability to sell properties, for current values, added to currently high levels of debt being carried, locate most households under extreme pressures especially in circumstances where significant job cuts are in the air and where sever underemployment continues to effect household incomes. And the debt burdens are only better in few places in the Caribbean or the world, for that matter.
Aggregate debt in the UK is 1000% of GDP. In the USA total debt when considered as an accumulation of deficits, household debt, corporate debt, Medicare, social security and other entitlements pass the 200 trillion dollar mark or about 2500% of GDP. Most of Europe has gone in the same direction of an orgy of debt which Justin Robinson bravely warned about. But now his DLP comes into office and continues with a similar policy as a devoutly neo-liberal, market fundamentalist, and avaricious debt seeking BLP regime of Owen Seymour Arthur.
We consider the real conversations that are happening in the inner circle of the government and within elite circles relate to the extent to which a numerical adjustment in the exchange rate of the country may be helpful. Regrettably, this policy option is an impossible conversation for any government to have with the public, for even an inkling that such an adjustment is in the offing will make mute any benefit which the government may seek. But the people are already voting with their feet and such an adjustment could be well anticipated anyhow. And Barbados is the perfect example of a country most likely to gain no benefit whatsoever from a ‘revaluation’. There is no real manufacturing sector to speak of and therefore no advantage viz s viz perceived competitive advantage. There are no real raw materials that can be exported either. There are already huge subsidies to the tourism sector which already represents a price advantage for foreign earners of hard currencies and investors seeking to come to Barbados. The country is already too disadvantaged by the international frameworks in the agriculture sector and given certain historical inabilities of the sector to sustainably provide for local demands, a ‘revaluation’ may more serve to pressurize the local population than earn significantly more hard currencies, even if room becomes available for some modest exports.
We are making a soft indictment of our friend Justin Robinson but our case against the prime minister, the minister of finance and the present administration is no less valid. For these are the ones who were ‘elected’. These are the people who misguided the masses. These are the ones who instead of coming clean with the Bajan people, they instead continue to seek the protection of bureaucratic excuses with an over reliance of historical political realities. These are the ones who are responsible for making wholly unrealistic promises to the mighty Bajan people, knowing very well that the trajectory of the global economy will not allow them to be kept such promises. Instead of coming clean, these are the ones who remain silent about the extent of the calamity we now face. In all this there is no real differences between Stuart, Mottley, Sinckler and Arthur. They are united in the maintenance of a dying system worldwide and are equally as guilty.
Ludwid von Mises makes the central argument that ‘sooner, or later’ there will be a total catastrophe as a result of a boom brought about by credit expansion. So Barbadians are in a position of deciding whether we want to die slowly or we want to die now. But we can’t die a little bit. Dead is dead. If we had our way we would follow the advice of the Great Chinese general, Sun Zhu, and locate the Bajan people on ‘death ground’ now. For it is on death ground that the powerful determination to exist will imbue 288 thousand Bajan soldiers, at home and many more abroad, with a will to fight. And we shall fight. Fight, like super humans, to save our country from the DLP, the BLP and economic catastrophe.
Pachamama is a social commentator