Hal Austin
Introduction:
All financial firms should by law be compelled to submit an annual business model to the regulator and supervisor for assessment if they are to continue to trade. This should be a basic condition to provide adequate consumer protection and the integrity of the financial supervisory and regulatory systems.
As has been stated before, the business models of insurance companies and banks, the two major financial sectors, are totally different. While banks borrow short and lend long, a flawed business model if ever there was one, insurance companies are often compelled to have a capital adequacy of at least 110 per cent of its likely liabilities. And, of the various branches of insurance – unemployment, health, home, motoring, disaster, etc. – the greatest moral hazard is motor insurance; it is the low hanging fruit, in that it is the easiest for insurance companies to make lots of money while paying out a relatively low percentage of claims.
First, unlike life and health insurance, or even unlike home and contents insurance, motorists are compelled by law to have insurance. Unlike life and pensions insurance, for example, there is no need to base actuarial assumptions on a continuous mortality investigation report and the one in two hundred event assumption is in many ways only theoretical since there is no longevity risk. Generally, there are two broad kinds of insurance regulation: firm-specific and industry-wide. Firm-specific regulation and supervision is when the authorities are focusing on a single firm, going through its books, interrogating its staff, and talking to a sample of its customers. This may arise out of a formal complaint, market rumour, suspicion or a randomised stress test.
Conduct Risk:
It is fair and legitimate that the financial regulator should expect that all legally registered financial firms should operate within the spirit and letter of the law. Market integrity is at the root of sound consumer protection and a transparent and fair financial system and firms with opaque policies or operational shortcomings cloaking their flawed management and actuarial risks. The first and most important of these risks are the design and distribution of financial products; their suitability for customers’ needs, affordability, and that they are not complex, opaque and over-priced. Marketing literature must be accurate, limited with no restrictions on exit; terms and conditions must not be over-burdensome, complex and must be written in simple English, and not legalese. There should also be a cooling off period. In other words, consumers must fully understand what products they are buying, their purpose and their features. What they are told they are getting is what they should get. Providers cannot hide behind the myth of caveat emptor – let the buyer beware. The second most important regulatory requirement is customer relations: are they treated fairly with transparent and object underwriting.
Understanding Insurance Companies:
To understand the viability of insurance companies, apply some of the analytical tools used by financial journalists and financial analysts. Look at the company’s annual report, especially the auditor’s assessment of whether it is a ‘going concern’ and the chairman’s report for a view on how s/he sees the immediate future of the company. Look at its re-insurance provisions, if any, in particular its reasons for reinsurance, types of reinsurance, its reinsurance assets and liabilities. You also need to look at its operating cycle, its accounting methods (statutory versus GAAP), asset valuation, liability valuation, capital and surplus, including its risk-based capital. Look also at its capital adequacy analysis, risk management and hedging, its financial forecasting and, most important its credit rating agency’s rating. Crucially, look at the members of the board, the senior executives, the key decision-makers and make an assessment of them, professionally and morally. Are they people you would trust? Look also at its legacy book and how it is managed. This will give a good clue to the firm’s culture and controls: i.e. internal systems and controls, making sure all employees know what is expected of them and how customers should be treated.
There is also a need for risk management to be transparent to all staff, from the very top to the bottom.
Suitability of advice and procedures for managing any potential money laundering attempts are also important. Customer outcomes are very important.
The capital reserves an insurance company holds – or its re-insurance provisions – tells us a lot about its viability. What makes the financial health of an insurance company so central to macroeconomic policy is that the central bank, i.e. the taxpayer, is the lender of last resort. If any insurance company cannot meet its liabilities government cannot stand idly by and tell the insured that that is bad luck; those insurance obligations must be met, although the post-crisis history of the regulatory failure surrounding Clico sends a totally different message. I believe, and I may be wrong, that this is the mistake made when the Mutual was being demutualised. Most of the arguments were political, including the makeup of the board, and to my mind the concentration should have been actuarial. I believe carefully analysis would show that members of the Mutual in reality paid to get rid of the society.
Conclusion:
What makes insurance companies, compared to banks, so central to long-term planning and family protection is that most people take out cover – from motor insurance to life to an annuity – and tend not to read t he fine print until they reach retirement, there is a disaster or a motor accident and they want to claim on the policy. That is why it is so important that all insurance companies should, as a regulatory requirement, be compelled to publish on its website its claims records: how many claims it has had over the past year, what were these claims for, how many were met without further query, how many were rejected and the reasons for the rejection. With motor insurers, one fairness measure is to abandon the smoothing mechanism, in which good drivers pay for the accidents of the bad, and underwrite the insured individually. In this way, the claims record of the individual motorist will be the deciding factor in deciding the amount of a premium, plus inflation. So, if over the duration of the cover the motorist has a no-claims record, then the premium should increase only by the rate of inflation.
Another way of individualising motor insurance is by mileage, by attaching a black box to the vehicle the insurer would know the number of miles and times travelled by the motorist and can charge as relevant. Again, in that way, the motorist who only makes essential journeys will not be penalised for the high-risk journeys made by the leisure motorist. There are other important questions that Barbadian consumers should ask: what are the minimum capital requirements for banks and insurance companies in Barbados? What are the financial assets and financial liabilities of the firm? And, how are these managed?
There is nothing to convince ordinary people that the banking and insurance regulators and supervisors are fully aware of the state of the global financial sector in which they operate. They seem to operate in their own little world. Nothing apparently has been said, or done, at least publicly, about the statutory solvency requirements for insurance companies, nor has there been anything about the regulatory conditions surrounding how these companies can use debt.
By definition, insurance companies are pre-funded, by that I mean that premiums are paid before claims are made. So, any founding capital an insurance company has serves more as a buffer than for risk-bearing. I believe there are only two acceptable business models for a bancassurers – a mutual or listed company. No bank or insurance company should be privately owned. This is a risk too far.
In the final analysis, there is an urgent need for a more serious debate about insurance generally, and motor insurance in particular, including its impact on public health. In the United States, the biggest motoring insurance market in the world, over 40,000 people are killed each year in road traffic accidents. In total, uninsured drivers cost the US insurance industry about US$250bn a year. Although the ratio in Barbados may be lower, road traffic incidents have a huge impact on public health and policing costs. Every victim of a road traffic accident in Barbados who has to go to hospital cost the public purse a large sum of money, which should be reclaimed from motor insurers; it is a scandalous abuse of public funds by these companies.
Apart from passing the costs on to the motor insurance companies, a no-fault liability clause in insurance legislation will remove the need for police to be called out to every motor accident, no matter how small. The other insurance scam, of course, is in the life and pensions sector with lapsed policies, what the industry calls lapsation. People who take out life insurance policies and allow them to lapse simply hand their money over to the insurance companies. To give an example, between 1991 and 2010, US$29.7trn of new life policies were issued in the US, during that time, $24trn policies became lapsed (many were taken out before 1991, which accounts for the discrepancy). In other words, American citizens simply handed over $24trn to insurance companies in return for nothing. (see: Narrow Framing and Life Insurance, Daniel Gottlieb and Kent Smetters, National Bureau of Economic Research, working paper 18601). Good regulation should force insurance company to handover all lapsed funds, with the exception of modest administration costs, to a national wealth fund to be invested on behalf of the entire nation. The equivalent of lapsation in motor insurance is to refuse claims or continually raising the premium.
Finally, the regulator should be able to impose unlimited fines on financial services firms as a penalty for breach of the rules. If such penalties have not been written in to the primary or secondary legislation, then it ought to be since this is one tool that the regulator needs in order to control bad behaviour by firms and to reimburse customers for lost investments, and compensate them for hurt feelings and general damages.
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For further reading, see: Risky Business: Insurance Markets and Regulations, by Lawrence S. Powell
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The Economic Theory of Insurance, by Karl Borch
I see that what looks like a quid pro quo Dr DeLisle Worrell has been invited to address the Peterson Institute in DC and has been introduced as a ‘distinguished scholar’. Wow!
Even more, he goes on to make the unsubstantiated claim that a fixed exchange rate with the dollar is right for Barbados.
Since most of our tourists come from the UK and Europe, and the dollar/pound exchange rate has now reached a four year high of $1.70 to the £1, UK travellers must be buying the dollar. I will get some on Tuesday.
@Hal
The Governor has done his post graduate work and written extensive on the subject not so?
I am sure you are right, David. And I admire this, but what has doing post-graduate work got to do with the argument about a fixed rate currency? He, and those who believe in such, must still put a case, not just make a statement, which this is.
There is a library of literature, but none is quoted or referenced. The basic point is that by decoupling from the Greenback and fixing against a basket of commodities and currencies, is a better way of managing the currency.
Then we could play the derivatives and futures markets to hedge against currency volatility.
Also, by devaluing, the tourists (our exports) will get a bigger kick for their buck and, therefore, will flock to the island.
It will also make imports from certain markets more expensive, thereby avoiding punitive tariffs on imports and, thus, avoiding a row with the WTO.
Why cannot those in favour of the fixed rate (relevant in 1975) should put their case.
@Hal
The Governor has published on the fixed exchange subject. His publication can be found under publications on the Central Bank website.
@David
I am not trying to do down the governor, lI have read a couple of his papers, on the central bank’s working papers and on other websites, but I have obviously misunderstood them.
I have read him on a small open economy, his most powerfully publicly available paper. Is that the one that impressed you?
@Hal
Yes that is the one which separates him from the others.
We would like to know which world this writer and those associated with him currently dwell. This article could have been written 50 years ago and may have had some relevance. This tired, well-worn, basic, diatribe, misses all current threats and has little relevance for personal, business or national finance. Indeed, the major threats to the global system do not reside in the traditional operations, as bad as they were and still are. These threats rest within deregulation, the removal of the fire wall between investment banking and commercial banking, the criminality at the centre of the financial system as spawned in London, new players (hedge funds) that distort traditional financial operations, the off-shoring of assets, the impact of drug money and other illegal gains, as commitment by large, ‘high street banks’ to rig the system. A general determination that capital will, without exception, go where prices are lowest, especially labour. The inclusion of 4 billion people who were outside of the Western financial system previously. And we could go on and on, Of course some of these causative reasons go to the barley field of the apologists. So we could have the ‘London Whale’ under his very nose and not a word was to be heard/written. We could have the Libor mechanism being compromised by senior bankers in London and elsewhere and right under his nasal passages but not one word for the BU sheeple. We could have HSBC being found guilty for laundering billions in drug money over many years and as one of Europe’s largest banks nothing is to be said, here, about it. On the other hand, all types of minor violations by the powerless are to attract heavy criminal sentences. We state, without fear of contradiction, that what we have forgotten about any type of finance most have yet to learnt. But the spoon feeding of the BU crew with dated information can only assist underdevelopment. These amount to mere words absent of a vision, a misguidance!
We forgot technology and the impact of high frequency trading (HFT), amongst others.
Hal,
Hal, we have said time and time again on here and elsewhere that any time a certain winning coalitional regime comes about Barbados and the PDC is a part of it, there shall be the Abolition of All so-called Exchange Rates Parities with the Barbados Dollar.
PDC
Hal said:
“Suitability of advice and procedures for managing any potential money laundering attempts are also important. Customer outcomes are very important.”
Hal…….I know you mean well, but which individual or regulator in Barbados from the AG’s (regardless if it’s BLP/DLP) office sliding down the ranks will police insurance companies in Barbados who are actively money-laundering, particularly if they are business partners, friends, bribe-takers…etc, etc?
By the way, word around Barbados is a class action lawsuit is in the making for CGI, that is the lengths people will have to pursue so their claims will be taken seriously and paid out, all the hoop la recently with Frank Alleyne and FSC, have you heard of any investigation being triggered and reported in the media, and it’s not like if they do not know exactly what is going on, they do, but just looked good on camera and gave Bajans false hope and new promises.
Some fun for the guys
https://www.facebook.com/photo.php?fbid=650902831614178&set=a.577925432245252.1073741827.139913906046409&type=1
Hal said:
“That is why it is so important that all insurance companies should, as a regulatory requirement, be compelled to publish on its website its claims records: how many claims it has had over the past year, what were these claims for, how many were met without further query, how many were rejected and the reasons for the rejection.”
“I believe there are only two acceptable business models for a bancassurers – a mutual or listed company. No bank or insurance company should be privately owned. This is a risk too far.”
“Finally, the regulator should be able to impose unlimited fines on financial services firms as a penalty for breach of the rules. If such penalties have not been written in to the primary or secondary legislation, then it ought to be since this is one tool that the regulator needs in order to control bad behaviour by firms and to reimburse customers for lost investments, and compensate them for hurt feelings and general damages.”
Hal…..in the first paragraph i posted, I would bet my last dollar that the only person in Barbados besides the insurance companies who would know that insurance companies should NOT BE PRIVATELY OWNED would be that slimy slug, David Simmons…Insurance companies should offer an IPO, even before they demutualized in the US, they were publicly owned with a board of directors and majority shareholders
As to publishing claims records and how many they paid out and did not pay out, we can only hope the FSC and Frank Alleyne takes their newly acquired DUE DILIGENCE documents seriously and make sure this happens going forward.
The FSC sees the reporting from insurance companies. It is up to the regulator to do its job. But then there was CLICO.
David……since the FSC sees the reporting from insurance companies, how come insurance companies are allowed to go 2 and 3 years without reporting and the FSC does nothing but talk, who polices the FSC?
@Well Well
What the FSC should have to explain is whether extension to filing was approved in cases of late filing.
David my love, i see 6 months as late not 2 or 3 years, that’s kinda much of an extension to approve.
To restate we have to find out tbe explanation for the extension. If none was given or it was ignored then blame lies with the FSC and NOT the insurance company.
So, David……..just for argument’s sake, how does one, in Barbados, go about finding out if an extension was filed, if it was approved or denied and if the insurance company never filed a request for extension, if there is any recourse for the insurance regulator in Barbados to, eg…….fine the company etc.finally, does the FSC even have any controls in place over these insurance companies, CLICO comes to mind a lot when the then regulator tried to stop the company from launching their little scam, there was so much political interference that the scam was still successful to the detriment of the policyholders, now old news, BUT, how much information does the FSC even have on these insurance companies and how can John Public find out that information that should be public knowledge.
@Well Well
Insurance is a business which requires the market to have confidence. The FSC like the Central Bank will be loath to make public comments about any business if has oversight that will question its functioning as a going concern. The checks and balance must be the FSC discharging its responsibilities under the Act.
On Friday, 18 April 2014, Barbados Underground wrote:
>
Let’s hope the FSC is reading all this and seeing how concerned people are about what is going on in Barbados.
@Well Well
Our own Jeff Cumberbatch is a member of the Board.
On Friday, 18 April 2014, Barbados Underground wrote:
>
@ Well, well
An insurance company is not systemically important. The American government moved to rescue AIG not because of its conventional insurance business, but because of its huge counterparty obligations.
Any company, especially a financial services company that is days late in filing its returns should be stopped from trading. No ifs or buts.
The regulator should move in and form a good company and a bad company. The good company would continue the business and take on its new liabilities, while the bad company would assume all its debts.
The other thing that policyhiolders can do, of course, is form an association and act collectively – withdraw their business and take it to a more friendly firm.
Well, well, one thing you must remember is that any call for improvements quite often leads to defensive opposition. It is the attitude that means there will never be improvements.
@Hal A
Even more, he goes on to make the unsubstantiated claim that a fixed exchange rate with the dollar is right for Barbados.
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One can debate whether a fixed exchange rate is the right path to take but whose stamp of approval or disapproval should we accept?
David……..that’s great, maybe he can enlighten us on FSC procedures re insurance companies without divulging any company secrets or putting his position at risk.
Hal…….I believe the biggest deterrent to FSC functioning and trying to regulate or control insurance companies would be political interference, the politicians/sitting ministers, senators, opposition etc are involved and can be very destructive when it comes to the public’s interest…..like i found out politicians and public officials have been personally involved and have a very private business interest in these companies since the 90’s, while also working for the taxpayers…..destruction at it’s best or worst, depends on how you look at it.
Sargeant
By that I mean there has been no economic argument to defend his position. He makes statements, just as Professors Alleyne and Downes.
I am not saying that there are no right, but I want to see the argument in support of their position.
What we do know, and this is incontestable, is that for six years the economy has been in trouble and so far we have not developed a policy to rescue it.
The governor of the central bank has been at the heart of this failure, and the professors no doubt have been asked privately for their advice.
This is not just an academic argument in an ivory tower, It is about the development of ides and how to apply those ideas to policy.
Reputations count for nothing. In 2007/8 the greatest economists in the world did not see the banking crisis and the following recession coming.
Most undergraduate economics courses still do not teach about the 2007/8 crisis.
Dr Worrell has written a critical essay on economics which is worth reading, but the best I have read is by Prof James Galbraith, the son of JK Galbraith.
@ Well well,
Your are right, but the ultimate failure is the court system. If people could appeal to the court and get justice then no interference by politicians and other powerful business people would stop justice.
Well, well, it is nearly 50 years of a declining system that is coming home to roost.
Watch out for the New Barbadians. When they get control of the country they will teach you a thing or two.
Watch for the Trojan Horse tactic, what we call infiltrationism.
Hal……..and they would deserve it, if you cannot get justice in a court system that is supposed to be objective and fair, something is very wrong with the individuals who are supposed to dispense justice, if insurance companies can dictate that they are not paying out claims for a decade then they have wandered into the criminal and should be dealt with accordingly, but as we acknowledged, the politicians continue to spread their poison, so at some time to come soon, they will reap what they are now sowing with wild abandon.
Well well, if this is true, and I have no reason to disbelieve you, where are the media? Why is this not reported? Even the Trinidad-owned local press would know a good story when they see it.
Hal……Trinidad’s media are not easily cowed like their Bajan counterparts, you can try to hide information or cover up a good story in Trinidad at your own risk and that of your families’, in contrast, everything is tied to politics including what the media in Barbados are allowed to research and report on, it’s disgraceful that politicians, public officials and lowlifes extraordinaire can dictate what the public can know in such a small island and smaller society, the only reason we know something is very wrong in the insurance industry in Barbados is because so many people have not had their claims paid for so long and some are fed up that there is no one paying attention to their situations… and they are supposed to have some type of recourse under the law.
I am sure politicians and public servants in Barbados mean well. They are just misguided. They believe this is the way to get foreign direct investments. In reality it is the way in for the Mafia.
Hal said:
“In reality it is the way in for the Mafia.”
From some so far unconfirmed reports, cause no one is willing to publicly confirm, the usual hide behind the hand and talk……..it may already be too late, it’s only when shit literally hits the fan, then we can all say AHA!!
In layman’s terms, Barbados cannot increase and decrease production of goods and services to benefit from a floating dollar.
The Barbados economy is miniscule compared to countries like Canada that let their currency float against the US dollar.
For example when the Canadian dollar rises, large Companies import more goods especially machinery.
When the dollar sinks they export more.
The point is that in a small economy like Barbados you do not have the “volume” to deal with currency fluctuations.
It is not in the Bajan DNA to respond to anything quickly or think outside the box.
That is my layman’s opinion.
@ Hants
The problem with your “layman’s” opinion is that it is logically flawed….as is the won’t of many such “opinions”.
BTW, this is also the identical situation with the political leadership in Barbados and their positions are just as illogically as yours…
@ Hal
The reason the GOCBB says that the parity rate HAS to remain fixed is that he KNOWS that ….much like the concept of the US dollar being the international exchange currency, ….our conceptual two-to-one parity is also a totally ridiculous illusion.
The day that this illusion is broken…both for Barbados and the USA…WILL BE THE END… of anything like life as we have known it for the past 60 years.
People like Hal and others who call for a floating exchange rate do not understand the level of idiocy that pervades our leadership – to the extent that our currency would reach Guyana levels within months.
Hants
In the REAL world, Hal is correct that the fixed exchange should be questioned, ….but in our make believe world, neither Barbados or the USA can even contemplate anything other that our current “illusions of importance” as exemplified by these illusionary monetary policies…
…you want people to realize that the Emperor has no clothes….?
Bush Tea wrote “neither Barbados or the USA can even contemplate anything other that our current “illusions of importance” as exemplified by these illusionary monetary policies…”
Please explain to this layman how a floating currency would help Barbados starting today.
I am not interested in cudda wudda shudda. Only how floating the dollar starting next year would improve the Barbados economy
@Hal A
Economics is a science where the same people can speak on either side of the argument and yet be still right. As an observer of events in the Caribbean I have to ask is the medicine (an uncoupled dollar) worse than the disease? Are the side effects of this medication more harmful than living with the illness? Most of us are quite happy to ignore the cons of ingesting some medication in the hope that the overall benefit outweigh the risks but when I look at our Caribbean territories that have a “lower” dollar there is nothing to suggest that they are prospering while we are floundering. Take Jamaica e.g. a larger country with a larger population and more abundant resources than Barbados who followed the prescription administered by the IMF (including a devalued currency) and they are still struggling these many years hence.
The Gov. of the Central Bank is pursuing a “stay the course” strategy and the Economists can argue about the merits of this approach but to this layman a devalued dollar will have an impact far beyond our generation and the affects will be long lasting. Given the resources available to us today a lower dollar will be the dark cloud preceding the economic calamity that is sure to follow.
The problem with Barbados, they have nothing to trade with, Canada is a good example where they can float their dollar during any fluctuations in the US dollar, importers/exporters can go with the flow because there is something to trade, wheat, oil, etc, etc. Barbados is yet to create, produce (because they do not have natural resources) something to trade with…..therefore, I see clearly where there is no choice but to hold on to the US/BDS peg for dear life.
@ Hants
Floating the Barbados dollar would destroy the Barbados economy in about 9 months.
Our lifestyle is built on the illusion that our dollar is worth USA 50 cents.
At the same time the US economy is built on the illusion that THEIR dollar has some meaningful international value….which is DOES NOT due to ridiculous debt.. However everyone acts as though it does – simply because it is the “accepted” international exchange currency.
Our economy is therefore sitting on top of two false illusions.
If we float our currency, or if the world acts on the common knowledge that the US $ is near worthless……
Well…
Break any one of these and the dog dead.
If YOU were the Governor of the CBB what would be your stance on parity…?
We have built a glass house in a world where people are wont to pelt bout big rocks…no wonder our officials are against pelting stones…
@ Well Well
“The problem with Barbados, they have nothing to trade with,…..”
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That is not correct…. We have plenty to trade with…tourism has been disproportionately successful for us over the past 50 years…. We have demonstrated productivity skills in electronics, garments, aspects of agriculture etc which, properly managed and marketed would be more that effective trading potential….
The problem with Barbados is that we feel that we have a RIGHT to wealth without effort and sweat….
We feel that we can always BORROW someone else’s money, or SELL some shiite that our poor ancestors worked and saved to BUY.. ….to get money in our pockets ( to spend on imported shiite).
Floating our currency would mean WORKING FOR A LIVING….. THAT is what it really means.
It means being judged, and paid, in accordance with what you produce….and being able to PURCHASE in accord with your productivity….
See why we can’t get involved in that shiite now…?
Brass bowls can’t produce squat….
They just beg, borrow, and sell off family assets…like PARROs …so we maintain parity to say to the world “Wunna can trust us….we are good for it….” Wunna can lend us – we can repay….”
BUT….that can only work for so long…….
Hants the Coles notes version of why the Barbados dollar is best floated….. if you dropped it on dry land it would bounce
The Bushman……..the clock is ticking, for so long is just a couple minutes away
@Hal
we were told that industrialisation by invitation would have sloved our regional problem of high unemployment and uderemployment. The noted Sir Arthur Lewis was the proponent of this thesis and where are we today? Woulndt your argument of a floating dollar fit into this concept? why are jamaica and guyand in such poor health, with high unemployment and underemployment , among other things.
.
There is nothing wrong with a fixed peg. Our problem is we have a fixed peg combined with draconian FX controls that is leading to declining FX reserves. We are running out of money to pay for the imports we consume. Our money is just about worthless . Unless the FX decline is turned around by earning it instead of borrowing it, we will run out of people who want to lend foreign money to us and then we will be just like Venezuela, running out of toilet paper. People who want to maintain the currency valuation we have had better come up a plan to earn FX or the game is gonna be over. IMF will make the plan if we cant.and you can rest assured the currency going to be devalued so that we are more competitive in our main FX earner, tourism..
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@ New blood
I am sure that I said the Bajan should be fixed against a basket of commodities and currencies and floated against the rest. That we should use the derivatives and futures markets to hedge our currency.
By fixing against the Greenback, Janet Yellen is effectively setting our monetary policy.
I think you have used two bad examples of economic mismanagement. In Jamaica, with bauxite, for decades all that happened was that the raw commodity was shipped up the gulf to the US where it was finished.
But Guyana is the basket case: bigger than England, with numerous natural resources, from gold to wood, this disgrace of a nation has a total population of about 750000 people, Great London alone has a population of about eight million; Great Georgetown could accommodate the entire population of Caricom – and feed all of us.The big problem is racialised politics.
Barbados, one of the most over-populated nations in the world, has once resource, our human capital, which is daily abused by government.
In Barbados we need new and workable ideas, which we are bot getting from the academics, politicians, public servants or public intellectuals.
BU is trying to fill that space.
When one looks at currency valuation around the world, there is a reason why everything is compared to the US$. It is the worlds strongest currency because it has the worlds strongest economy.
There is one major difference between the US economy and most other large ones. It is the fact there is no national sales tax. There are state taxes that for example in Florida are 7%. Canada has a national sales tax of 13%. Some European countries are 20% plus and Barbados is 17.5%. Take these massive inputs out of Government coffers and see where their deficits would be. The USA has a system that lets their citizens enjoy a better life style by not having massive VAT tax.
If our dollar were truly worth 2 to 1 to the US$, why do we have to add VAT to every purchase approaching 18%. And how about the cost of a Toyota Camray. In the USA it is $28000 and in Barbados well over $100,000. That just tells me that our total economic system is very much out of wack with the one our currency is tied to. The system we have had chance of working and sustaining itself when we were flooded with tourist and ICB’s but that is no longer the case. It is all changing and we are not keeping up. The only plan has been borrow more FX.
@Sith
I am not sure where you get your ideas from, but the reason why the dollar is so powerful is because it is the main currency of international trade.
The Renimbi is now used quite often in Asia, and it is being traded in the UK and Europe. I still believe that the Euro will in time emerge as a leading reserve currency.
The Barbados dollar is overvalued in real terms, a price being paid by ordinary consumers.
The Chinese economy, according to some analysts, is now the world’s biggest; if not already, some predict it will be by 2016 and others by 2020.
The US economy will remain the world’s leading for some time yet, but not to the extent that it was in previous decades.
Poker , to play the game you need chips, Chip are bought with Dollars
To play World Banking you also need Chips
In this game you need Gold ,
Gold is anti up in NY at World Trade Building Basement
Your Chips are now amount of DOLLARS you can Print
Gold prices jump from 200 t0 300 to near 1900 at one point,
This Allowed Government to Print More Paper, 65% Lin/ 35% Cot.=PAPER
Barbados is to be pegged to the USD 1.98$ as far back as i remembered in the 60s
We can see that the US Debt grew much faster than Barbados on any scale.
We on a See – We are in the Middle, Much talk no movement ,
Its the Fraud DBLP doing this Hoarding that they did not work for , raping the nation,
We need not blame other countries , nor tourist of the World for what these two Government have done to Barbados , Look at the BANKS for answers, More Laundering and Fraud, Just take a look at TODD and Sinckler Holdings, MIA , Owen, Credit Union,Ralph Thorne,COP,Mark Cummins Ham and COW, you will get a good look ,
A Private and not earn General pay to live like a King.
All the money we need is hidden in Banks some where , All the funds have numbers on them, Make them prove source of FUNDS before giving them the NEW MONEY ,
CROOKS , LIARS AND SCUMBAGS RULING AND MESSING UP BARBADOS TO HIDE THEIR OW GREED.
@Hal and SITH
This paper by Dr. Worrell you should find to be insightful:
@ David
You can’t be serious….
That is abject nonsense….equating our exchange rate with the conversion of miles to kilometers is pedestrian at best…
A currency exchange rate is based on the relative parity of productivity and other sociological norms between the two communities.
These are not fixed variables….if a society becomes more productive the value of its currency increases, similarly, if they maintain productivity but became more frugal in their demand for foreign goods, their currency will also become stronger, pressuring a change in exchange rates with external currencies.
A country that grows increasingly UNPRODUCTIVE (like Barbados) WHILE INCREASING IMPORTS …will experience a weakening of its parity rates. We addressed this by BORROWING money to maintain our spending patterns. This is NOT a sustainable arrangement.
The correct SOLUTION would be to boost productivity (via a meritocratic approach to all national business) and / or to CURB demand for foreign imports (by substitution and LOWERED expectations)…
…..but brass bowls can’t get that done….
Even if we try to maintain the current parity, INEVITABLY we will run out of borrowing options, creditors for goods, and refinancing options…..then the correction will be like the earthquake that builds up for centuries and then releases in 5 minutes…..
Floating the exchange rates is like having lots of ongoing small earthquakes that gradually release the tension and equalize the pressures…..
These idiot politicians all think that they can just kick the can down the road to when someone else will have to deal with it…..
And we (brass bowls) allow them to do this…..
@David
The exchange rate is related to the FX reserves. Our exchange rate is causing FX reserves to declines. Our export product (tourism) is not competitive.
The Government nor the GBB seem to have a soloution for the declining FX reserves other than to lay people off so they have less money to spend leading to less FX trickling out of the country. Seems to me that the last loan we got of $250 million US required 50 million to be kept on deposit in US$. So the lender put a discount on the ability to get repaid in US$ of 50/250..or about 20%. If we don’t increase FX sources we simply wont have the money to pay the import bill.
@Bush Tea and SITH
Have put the Governor’s black and white how he views the Barbados peg and that is all. He has the doctrate.
David….What does having a Doctorate mean in this day of economic turbulance?
@Vincent
In the matter under discussion it means Governor Worrell should be able to apply high level concepts to the construct of exchange rate and currency parity.
@ David
…this is the honest truth….
Most of the REAL idiots that Bushie know – have doctorates……shiite man! some have more than one…..
What would you do if, from young, you realized that you were as dumb as ac, and enjoyed even less respect than Dompey?
…would you not do ALL in your power to get something that gets you some respect from brass bowls…? PhD skippa….and they were FREE in Barbados for all and sundry…
LOL
You know how many people have PhDs is total shiite….like
“The esoteric perambulations of the Barbados green monkey and its relation to the conceptualization of illusionary monetary policies in St James ”
…. and know Diddly SQUAT about anything else….? …and you done KNOW Bushie’s position on economics …..and on Dr Mascoll…LOL
….wait what happen to Dr George Braffit PhD(soon)?
…still can’t believe that the Governor could write so much shiite….. 🙂
@Bush Tea and Vincent note Worrell’s speech/paper is posted on Bis.org website. Serious business.
BT..
CHUCKLE……Take my hat off to you…
Notice you run from AG. and SSS…..lol
Vincent
You was a gallows bait from school….
Run from Ag.? ….if you only knew…. 🙂
As to SSS, …from the time she asserted that a bulldozer is needed to cut some bush …Bushie done wid dat hear…? None of the bush where the bushman comes from don’t need no damn bulldozer….
…sounds like um is Bushie she looking to whack…which is a dangerous thing – cause it ain’t safe to mess with BBE’s boys…. 🙂
…so for peace’s sake……..
Bush Tea
It appears as though you’re a sucker for verbal molestation brother? Because yet again, you have continue to exhibit a level of ignorance, that isn’t beyond the periphery of your intellectual capacity. Now, who in their right mind, cares about respect on a blog which obviously favours a certain viewpoint? listen retard, my objective here is to get my point across, irrespective of who likes or dislikes it. And by the way, it’s best that I inform you: that there are those here who cares little for your mundane opinion. But you obviously would not understand this because your over -extending- Ego, has impeded your ability to know the differences. And to sum this up in a few words: you need not concern yourself with who does or doesn’t value my opinion. You have bigger things to worry about brother, such as: to fuel your overreaching ego which aggrandize your sense of importance.
LOL @ Dompey
“…..yet again, you have continue to exhibit a level of ignorance, that isn’t beyond the periphery of your intellectual capacity. ”
+++++++++++++
Yuh idiot….you got problems with Bushie’s ego..? Ha Ha
Anyone who would say the above meets all the characteristics of a PhD candidate….that is. Low self esteem and in need of some kind of social acceptance…. What is your thesis on…?
Why you couldn’t just say ” Bush Tea you brass bowl idiot…” ? 🙂
Wait though…were you not supposed to ignore Bushie…? LOL Ha Ha
BushTea
Just curious: did your madda every ask you to run away from home when were a child? because if she didn’t, she would have had to had the unwavering resolve, to have dealt with a sucker for punishment like you yourself. Now is there any conceivable limits to your obvious stupidity sir?
The Governor of the Central Bank of Barbados in 2008 said on national tv that there were no economists in the world including himself, that were competent enough to give advice in the current situation … I wondered then, as I do now, why is he still employed ….?
Bush Tea
It takes a lot from this man to ignore your belittling sense of humour. And I only hope that you’re aware of the fact that the pendulum swings in both directions? Perhaps, Ross should teach you a thing or two about the appropriate kind of humour. Ross, help this brother because he hasn’t a clue?
@ Baffy
…always wondered how it was even possible for someone is such a position to say such a thing…and to continue to draw a salary…
Presumably he wrote that article BEFORE coming to that realization, however it is clear that he is correct – at least with respect to himself.
@ Bush Tea | April 19, 2014 at 8:53 PM |
“A country that grows increasingly UNPRODUCTIVE (like Barbados) WHILE INCREASING IMPORTS …will experience a weakening of its parity rates. We addressed this by BORROWING money to maintain our spending patterns. This is NOT a sustainable arrangement.”
What a most insightful comment!
For that statement alone, Bush Tea, you deserve the honorific title of “PhD” behind your name.
Not meaning to massage your ego but I am really impressed with the rational thought process undergirding your commonsense observation of what is irrational with the Governor’s obviously misplaced academic approach to a futile continuation of trying to protect a currency that in reality has no value internationally.
Barbados has a problem of productivity and marketing its goods and services to foreign buyers; not a currency problem to cover up and protect from the big bad world of financial wolves.
When Barbados produces at the level where people are prepared to buy its goods and services at a price (denominated in foreign currency) determined by the market then it could become adamant about protecting some ‘illusory’ peg. Further borrowing to protect the peg will not be the answer but can only be the final solution to its shaky house of financial cards.
We shall soon see who will win the battle between the academic Dr. Worrell Magoo and the visionary practitioner Sith with his wavering sidekick Hal Austin and with Miller in his corner.
The Guv knows ‘fully’ well the horse has bolted from the devaluation stable and he is simply putting academic manure to his already ripened intellectually burnt canes.
The Governor is just preparing the wicket of debate for the only outcome on the present economic trajectory. He is compiling his dissertation to be delivered to the IMF panel of examiners with the title “Well Well, I did my utmost academic best to protect the useless Barbados Dollar”.
Busht Tea you heard the comment too .. Good, I could not have been dreaming… Unconscionable
Miller you must know that when people find creative reasons to defend an inevitable it is only to give sufficient time for those in the know to prepare.
Pingback: Notes From a Native Son: Insurance Companies Are a Licence to Print Money: Who Insures the Insurers? | Black In Barbados
If you have a system which is peopled by hand to mout politicians, as in the case of BIM, how do you expect any push back or real regulation of the insurance industry. Lionel Craig was an insurance man and many of the politicians between the two parties in Bim; how do expect these fellows to bite the hand that feeding them.
Lenuel…..they should take heed and pay attention to the Leroy Parris scenario, he can’t feed them anymore, that is what ultimately happens…lol.. in this case it would be prudent to jail the culprits and those current and former public officials who have been helping them since the mid 90’s
Well Well
Given the Barbados in which we live both of us would be wishing and hoping for a longtime. i still see Leroy Parris jogging or walking or stumbling along the highway early in the morning as if nothing is wrong.
Your are right Lem…that is because he and those like him do not live in places like Jamaica and Trinidad so they are made to feel by their politician friends that they are untouchable, not for long though, some of them are over doing it, so they themselves are taking it to another level and so will the people being affected by their greed and lack of empathy….I am told one of them is still trying to figure out what happened outside his gate not so long ago and that is just the beginning.
@millertheanunnaki
Thank you but I am not a visionary practitioner. I am CPA, CMA and a past professor of various business subjects. In analyzing the facts it is not that difficult to conclude that when you are spending more than you are taking in you eventually run out of money. Our monetary system is doing exactly the ropposite of what we now need to get moving ahead. Imports should be more expensive so as to promote local production and exports (tourism) less expensive to promote more business. IBC’s are on the wain because of increased tax authority scrutiny and tourism is down. It simply is not like it used to be. The IMF will come up with the plan to begin to save us if we cant. Laying off 3000 people is a start but a very small one.
Miller
I love the way in which you’re throwing around your academic credentials. I am impressed….lol… brother, you’re all that I would have sought, all I seek to emulate. lol….
BARBADOS HAVE PROBLEMS THAT WILL LEAD BACK TO FRAUD
THE WORD BARBADOS IS THE ISLAND IN THE SUN , THE KINGS OF FRAUD ,SO MUCH FRAUD IN ALL THEY DO AND DOING.
THIS WILL BE LAST TIME ANY OF THEM , THOSE CROOK WILL BE IN OFFICE , FACE THE TRUTH AND THEN FIX IT,
WE DONT WANT TO HEAR SEE NOR TALK TO PIMP CROOKS LIAR AND SCUMBAG,
HAPPY EASTER TO ALL , THIS IS NO TIME FOR LIES
Business Monday: Fixed exchange rate serves small open economy well
4/21/2014
â satisfactory foreign reserves key
THE key to successful economic policy in small very open economies (SVOEs) like Barbados, is to secure the exchange rate anchor by ensuring the countryâs reserves of foreign exchange remain at an adequate level.
This is the view of Dr. Delisle Worrell, the Governor of the Central Bank of Barbados in an address to a function sponsored by the Inter-American Development Bank (IDB) in Washington D.C.
âSVOEs are price takers in international markets: they cannot increase their earnings by lowering their prices. To stay in the market they must achieve profitable production at the ruling international price,â the Governor told the 39th meeting of Networks of Central Banks and Ministers of Finance from Latin America and the Caribbean.
He said that a second reality for SVOEs is that they do not produce the consumption or intermediate goods they use; these are all imported, as are most items of machinery. The reason is that SVOEs have limited human and physical resources, and they can achieve internationally competitive scale in only a handful of activities.
âA depreciation of the exchange rate therefore serves no good purpose, and it has the adverse consequences of high inflation and undermining investor confidence. Fear of devaluation therefore provokes capital flight, because no-one wants to be caught out by the devaluation,â according to him.
He also dealt with the issue of how should the SVOE stabilise the external accounts to sustain adequate foreign reserves and to restore adequacy when reserves have been depleted.
According to him, The answer: by containing aggregate demand, and thereby limiting the demand for imports, to fall within the supply of foreign exchange. The tools for aggregate demand management are government revenue, expenditure and the strategy for financing governmentâs deficit.
Dr. Worrell stated that these are the principles underlying the Barbados economic strategy.
The global recession has been a challenge for Barbados. Both our principal foreign exchange sectors (tourism and international business) were hit. And growth stalled in all three of our main markets: the UK, the US and Canada. The Governor explained that the strategy for Barbados to persist with the programme of adjustment and growth that has served us very well in the past.
âIn the short run aggregate demand has to be cut, in line with the reduced availability of foreign exchange to buy imports,â the Governor said. âHowever, our economy has become more resilient in the face of shocks than we used to be. The cumulative real income contraction since 2008 is no more than 3 percent, compared to a 14 percent drop in the early 1990s,â he added.(JB) Email us your comments. | Top
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@David
“âIn the short run aggregate demand has to be cut, in line with the reduced availability of foreign exchange to buy imports,â the Governor said”
Therein is the issue. To me this is like running a business. The first rule of business is you have to understand is the name of the game is buy for one and sell for two. If you don’t get that concept the rest of it does not matter. Likewise with FX, you must have as much coming in as you have going out. If the only answer being put forth is that demand or outflows have to be reduced, that is telling us there is no solution to increasing the inflows. That certainly does not sound like a bright future for us.
@SITH
But the Governor admits Barbados must generate forex to pay its bills, he agrees with you, partly anyway.
Hal Austin, December 29, 2013 at 6:23 PM:
“This is a typical case of disrespect and contempt by working class, council house people from Europe and North America who would normally be working in MacDonald’s”
Still relevant
Can this be part of BERT?
Clico?