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Friday, August 27, 2010

Getting around in New Providence!

The school year in The Bahamas starts off in full swing on August 30th. That means more road rage, late comers, accidents, short cutters through the petrol stations and all around Tom foolery. The road sight is not a pretty one, even during the off-peak season.

There has been varying reports on how much persons in The Bahamas spend on this stress called transportation. The number varies from anywhere between 20 to 30 percent of your salary on average on gasoline alone. Spending anywhere from up to $100 to $150 per week for a non delivery driver-- depending on your personal load (which can leave you quite broke) -- and with gas prices nestled at a comfortable average of $4.25 per gallon, that range estimate seems fair.

However, other reports have it that, roughly, only 20 percent of Bahamians use the public transportation system. Additionally, it is said that the average car per household is 3 for every 2 persons (I always wondered where some get these estimates?).

Why would one person need 1 and 1/2 of a car, is beyond me. But, that statistic becomes more severe in reality that when you travel the roads on a daily basis- with the ongoing road improvement project not making life any easier- you notice that the traffic on the island of New Providence is a miasmal mess.

Jitney (public transport buses) drivers are the worse. They would make Mother Theresa sin. They cut you off, block the road and stop anywhere to let on or off a passenger or just to count their change- I thought we had demarcated bus stops for all of this?

They, along with the idle day drivers- those people with absolutely nothing to do but drive around all day- need an intervention.

We need a better public transportation system on the island of New Providence, at least. We also need a comprehensive transportation system in Grand Bahama as well. But, Grand Bahama is for another article-- one word however, railway.

There was a position paper done by a few College of The Bahamas professors some months back. I have not had a chance to read the document, but some have been on the talk circuit, asking for change to the existing system. One change mentioned is that we should unify the bus system in The Bahamas, particularly for the system on the main island of New Providence, as a way to get more people out of their cars and on to te public buses. I have some thoughts on that.

During a discussion at a dinner with a few colleagues a while back, the issue about the public transportation system came up in that the individual bus owners, can't seem to come together on what the terms of an agreement on a unified bus system would entail. No party wants the other to be in total control, and no one wants to lose money if their routes were to change from one where it was profitable-- I wouldn't take that couchant, either.

A recognized bus union in The Bahamas, the Public Transportation Authority of the Bahamas (PTAB), has been working tirelessly, as it appears, in trying to create a unified bus system.

One of the things I think that they could look at, is that they should propose to the government or an investment bank, a plan for an intervention and attack the problem from a necessary, but yet expensive, standpoint. However, while it may be expensive in the short term, the long term benefit in that it would create a multi-shareholder monopoly union that is open to the market and would benefit us all.

What should happen is if that firstly the government should impose a moratorium on all new bus licenses. Secondly, government, with internal or external financing, should, by mandate, gather all license holders and make them one company.

Those who want out of the new company, their licenses should be forfeited and they should be given compensation in cash or with a minority share offering in the new company and paid out gradually.

The new multi-shareholder monopoly should finance a new and improved public transportation system, exclusive of taxi's and tour buses. This new system should be complete with new bus terminals, bus stops, a new route, new rate system and machines for fare top up's, modernized payment options, a new fleet of buses- eco friendly of course- and be open to the public via the national stock exchange, in order for investors to be able to participate as well enable the new entity to raise funds other than from private, angel investors or by random fare hikes.

The short term political pain would be with mandating bus owners into the new system. But, if compensation is financed via a pay out option for persons who don't want to be a part of the new company, as well as compensation for the loss of vehicle use during the transition period for persons who want in, these things should ease the burden of change. With that, a loan repayment that is sensitive to the issue of change, as well as creates a minimum bus fare floor in order to finance repayment in an orderly fashion, with sliding fares for peak and off peak times, this matter can be worked out-- before we get to performance bonds and the rest of the financial drolls.

Another pain would be during the transition period of the phase in of the new system. Sensitive execution is required, especially if licensees are to be compensated during the period of transition and also if the transition is gradual and phased in via the most used routes, as a way to minimize the effects of the temporary loss in service.

The long term benefits would be the upgrade of an essential public good, more persons using the public transportation system instead of their 1 and 1/2 cars daily, a new company to be listed on the national stock exchange, a cleaner environment, savings to the average consumer on fuel, an efficient and reliable bus service along with a new industry complete with everything from administrative staffing, to mechanics, to bus drivers along with the creation of a private sector entity, financed with government bonds or backing- an entity that can actually pay off its debt to the government or other parties or being co-owned by the government via shares, while providing a useful and essential public good in addition to it being sensitive to individual livelihood.

Whatever plans are worked out, government intervention is unavoidable if we are to break this stalemate- everyone knows, from the licensees to the average citizen, that we need a better public transportation system. One that is sensitive to the livelihood of the licensees as well as the public at large.

Monday, August 23, 2010

Notice how everyone stopped talking about the economy?

It doesn't take a man with x-ray vision to see that most news stations have stopped talking about the economy. Some have even resorted to talking about foreign news- ala the miners trapped in Chile.

It's still a pretty bad state we are in. Things are getting a little better, but until you see investment pick up in the USA, there is nothing much anyone can do.

In the meantime, we have to keep focused on the signs for recovery other than investment flows.

I have to admit: I have not been watching as carefully as I used to, but I will do more.

Sunday, August 22, 2010

No one want to win these days...

Well, it appears as if no one wants to win an election out right these days. Just a few short months after Britain had its first coalition government, Australia is now going through a similar problem.

The current Australian Prime Minister, Julia Gillard, leader of the Australian Labor Party, has hurt herself.

She called a snap election in attempts to take the conservative party off guard, after beating former PM Kevin Rudd in the last election very handsomely, and is now unsure if whether or not she won outright.

Apparently, the independents are large in numbers and have no allegiance to any particular party. So, they are holding Mrs. Gillard at ransom, for her own hi-jacking!

Funny thing politics is...

Sunday, August 8, 2010

Two scoops of recession and a pinch of budget cuts!

The word on the streets is now there is a possible double dip recession in America. This is a considerable concern for not only large manufacturers in Asia and Europe, but also for smaller economies in the Western Hemisphere as we depend on American investment and tourism.

The American stimulus plans have run out of steam, with unemployment is still unacceptably high. President Obama, on the other hand, has said that there is no need for concern over a double dip recession in America- but, forewarned, is forearmed and the will of the possible, may not be the will of a natural course of events.

Simultaneously in and around Western European and American Consensus economic policy circles, is that budget cuts- and in some instances tax increases- is what should be done to stem the tide of fiscal deficits, even during this still yet sensitive time in the economy.

However, the ideas that: 1. Consideration’s over the option of more economic stimulus is out of the question and 2. Tax increases, in particular, is a desirable option, need more fleshing out in terms of their intended impact from a purely theoretical standpoint.

The first and obvious truth is that the American stimulus package did not go far enough. In fact, it has far less impacted America and the world, much more than it was billed to help.

For one reason, employment did not substantially grow over the course of the stimulus being rolled out. About 9.5 percent of Americans are unemployed, with business confidence still very low. In addition, the stimulus money way spent in areas that had little to do with the private sector, but rather with government sponsored programs that were and are short lived.

Service related jobs were not factored in to the American stimulus package, other than from “shovel ready” jobs- which were temporary- in addition to that creating more services related activity which didn't have a manufacturing base to support it.

For example, leading up to passages of both, The Economic Stimulus Act of 2008 and The American Recovery and Reinvestment Act of 2009, beginning from January 2007, business inventory rose by nearly 25% while service related work over manufacturing work increased considerably.

This displayed as well as created a major problem with the American stimulus plan; as the service related jobs were built around the government sponsored programs, they were not based on supply and demand for private investment along with an increase in manufacturing jobs outside of automobiles- which was also a government sponsored program for three of the top four automakers in the USA. And, as the money dried up, so too did the jobs and the economic multiplier effect that it temporarily displayed.

Even more so, a large amount of subsidies to private firms went towards technology, education and renewable energy. The first concern is that technology, need not be manufacturing based, especially with cheaper labor markets outside of the USA and global competition in the tech-sector being very stiff.

The second issue is that education does not stimulate the economy in the short term, especially when employment for trained professionals are even weaker than that of trained workers with years experience. And renewable energy is a new frontier and is a long way from being an economic staple for average consumers.

This added to the fundamental weakness in the structural economy of the USA- the main being that manufacturing has declined well below their peaks, even into the late 1980’s- , has led to current revenue shortfalls in addition to those forecasted.

The worst of it all is that countries in Western Europe, with Germany leading the way with respect to what they term “Ordnungspolitik”, are in the mood for not only budget cuts, but permanent budget cuts and tax increases as well as with Germany going through in the process of a wide sweeping deficit reduction program.

With the Euro-Zone and The USA representing over 40% of global GDP and, in turn, world production being affected by budget cuts and, in some instances, tax increases, the global economic outlook does not look so rosy, just yet.

Why are large European governments, with smaller countries following in lock step as much as they can, willing to sacrifice global economic recovery efforts rather than continuing to keep it afloat with additional credit?

The first issue is that it is seen that Keynesian spending, coupled with lower than normal interest rates, have not effectively dealt with the situation for the long term. In fact, I would be surprised if any economist, who is at the very least an observer of this crisis, would cant rip the public that government intervention is the measure that stops this recession.

With further respect to Keynesian spending, as a consequence, it, in effect, pulled private sector jobs into the government sector, with the government sector now being affected by budget cuts, which also signifies that if those government jobs were temporary- as in the case of the shovel ready projects- the private sector is back at square one and stuck with persons without the rigour of private sector competition, who would add dynamically less to the real economy.

A second issue is that sovereign bond yields affect public policy and economic policy making.

As government revenues decline, and if interest rates move lower, bond yields are adversely affected. For one, as the outlook for a country’s economic position worsens, governments find it harder to sell sovereign bonds at a higher rate. Secondly, as real “short term” interest rates move lower, in many instances, bond yields move higher as inflationary expectations are equated more so into financial risk matrices- which are also tied to the overall outlook of the economy.

Monetary policy is ever more important at times such as these. Interest rates have already been slashed, but this would be innefective if structural change and program design does not faccilitate the interest rate movements.

When the Central Bank is inactive with regard to market regulation, credit supervision and running the type of private sector related programs to assist banks with extending credit, while the economic landscape is still yet brown with deep-rooted buds are yet to take shape, using interest rates for private sector stimulation, is a zero option and an even more undesirable policy option to the extent it affects the bond market.

At the totally worse end, it is more damaging if monetary policy is not in sync with fiscal policy. It may lead to a loss to investors in the sovereign bond market as well as it may hurt Main Street in the short term if not negated by other economic policy measures.

From where I sit, it is a balancing act taking place in America and in Europe. They can afford to play the game with respect to large stimulus plans, budget cuts that affect economic recovery- while the smaller economies suffer as a result- and interest rate cuts- the latter probably causing what a liquidity trap.

Smaller countries are in a much different position and they need to monitor larger countries from a cautious perspective and continually seek to understand the causes of things.

The troops are coming home!

Well, it seems as if the troops are coming home- well, most of them.

It was announced that the USA plans to drawn down troops in Iraq to 50 k by September 1st. Allot of families are glad to hear that.

Will this destabilise Iraq? Who knows? Reports from Iraq are mixed on the matter. Some want the USA to stay longer, others want them to get out- in both Iraq and American circles.

I think the worst of it is over. Saddam is gone. The real battle for terror and the middle east is in Afghanistan. While there are terrorist elements in Iraq, they have never taken hold as they have in the no-man's country as in Afghanistan.

President Obama's mission to end the engagement with Iraq is finally here.