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Wednesday, December 15, 2010

All hopeful for a better 2011!

As it turned out, 2010 certainly is a year most people could afford to forget, if the traumatic effects of economic uncertainty weren't so fresh. I haven't given up on predictions, but just that predictions are predicated on what the nature of the policy prescriptions allow. As with the fluid nature of the tender times in economic history, projections, can be changed or affected within day's notice. With that, growth forecasts perhaps need to adjust to what are the drivers and causes for fear or misconception on the economy currently and about what could, should, is and has been allowed to happen on a month on month basis!

Regionally, there hasn't been any Caribbean country, aside from Trinidad and Tobago, that had anything to be gleeful about- T&T has natural resources, mainly oil, so, the cost of production of local goods as well as the export of oil and oil bi-products to supplement their economic model, served them well. For everyone else- political issues aside- it has been dismal.

Latin America, as with the African continent, began and is going through the structural adjustments that many have wanted for at least 50 plus years! Hence, their seeming stability, through the worst of it, should be of no surprise. They have embraced freer markets, began curbing the tendencies of an over saturating the public sector, as well as received Chinese investment, to the tune of billions. Also, moving forward in a most progressive manner, they have taken a diagnostic approach to their development and have, as policy, employed the techniques- while still under review- of diagnostic methodology like the Human Development Index and Human Opportunity Index, as a staple of economic adjustment and performance barometers.

Switching gears towards our neighbor to the North: America is still in the doldrums. It's so seriously difficult to address that commentators have stopped talking about the economic numbers and simply reverted to the old method of tax policy to affect some type of change in the circumstance. In addition to the fact that 2010 was an election year, the economy took a back seat to the Tea Party, posing as paragons of economic virtue. The "comprehensive" economic stimulus was ineffective as well as with the tax policy as a component of it, as employment still hovers around 10 percent. While much was done in the past two years president Obama was in office structurally, it appears as if not enough was done to stimulate American productivity and boost exports in addition to unlocking consumer loans from banks.

Additionally, the USA is now mulling over what analysts would coin "American Stimulus 2!" To be fair: it's American Stimulus 3! The Troubled Asset Relief Program (TARP) of 2008- while it was coined as a bailout for financial firms and the toxic assets they were exposed to- was a stimulus plan in itself, in that it attempted to stimulate banks to lend by removing the risk to exposure to the investment products that were creating higher risk portfolios, which in effect were preventing them from lending. The second plan was the American Reinvestment plan of 2009, which did more to add value to an uncertain American future on the global economy, rather than it providing short term strengthening domestically.

Europe isn't any better. The Euro-zone is in a particular and severe crisis. The problems with Portugal, Ireland, Greece and Spain (PIGS), has put the idea of the largest currency union at its harshest testing point. The risk of a disintegrating Euro-zone through the debt contagion of weak performing Euro-zone economies has everyone concerned. While inflation has been stable, the euro isn't- the Euro, being the glue that holds the zone not only together in strength, but together in anguish.

The European Central Bank (ECB) can do nothing about the risk of a devaluing euro as a result, if countries continue to fudge their financial statistics and report, falsely, on the dynamism of their economies, in addition to them having the lack of political fortitude to revalue their economies to what it should be- i.e., weak performing, Euro-zone economies, not on the scale of France and Germany, especially as it relates to agriculture, manufacturing and financial markets. Furthermore, the markets have dealt, severely, with the PIGS as sovereign bond yields have risen as well as the market for homes has collapsed with the financial sector, frozen in fear.

Additionally, the ECB has done very little about inflation, even though it has remained stable. The issue with inflation is that employment is still very soft. So, glittering reports on a stable inflation rate in the Euro-zone may be misdiagnosed, due to a lack of appreciation on the real reason behind inflation drivers in Europe.

Inflation in Europe is tied directly to production and production is tied directly to employment. Employment is tied to consumer demand and consumer demand, is soft because of uncertainty in the labor market as the labor market as with the United States is affected by higher productivity levels in Asia- China and South Korea, respectively. When understanding that the unemployment rate through Europe is over 10 percent, while bond yields have plummeted- which signifies a state financing issue that was caused by weakness in the general economy- the issue shouldn't be low inflation, but current deflation with the risk of hyper inflation when the economy picks up again, if the drivers for current inflation statistics remain misdiagnosed.

China looks stronger than normal over any other Asian countries. The Renminbi has been revalued, almost simultaneously as the Chinese stimulus package began to turn consumer spending inward, as opposed to their export focused economic model This not only giving the Chinese consumer more purchasing power, but makes investment into China more expensive at value. Additionally, the Chinese government has taken steps towards cooling their overheated real estate market, which was grossly inflated due to speculation- the revaluing of the Renminbi is a part measure as it would limit investments in all areas and not just real estate, in addition to an imposition of a real estate tax as well as imposing a higher down payment requirements for persons wishing to purchase a second home.

As for the Bahamas: we are in a cast to ourselves. The market for tourists in the US is still soft, while tourist arrivals are up in The Bahamas from last year this period, but not back to their previous levels.

Foreign Direct Investment related projects are getting a fresher look. Baha Mar, as well as with the fourth phase of the Atlantis/Kerzner development, should be enough to keep many Bahamians busy in 2011.

There should be greater assurances that these developments impact on a greater, more meaningful scale. One can only wait to see how the dynamics of the socio-economic agenda push matters moving forward. Certainly there should be a close eye on all and sundry, as money begins to be spent on these developments.

With all things of note, I wish for everyone, from family, to friends, to my loyal readers and the editors of the news outlets that keep my commentary in the public square for all to share, a very Merry Christmas and a Prosperous New Year!
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