This is deep Lurker. Really deep, I just had to quote it.
I wasn't aware that the Central Bank could not refuse the gov't note.
I thought that was why 'they' were giving Mr. Francis such a hard time.
So basically, the PLP liability/obligation = US receivable(s)
Because of the IMF warning, they're scared to borrow internationally and go over the 40% figure. Perry looks adamant on protecting that "A" grade from Moodys. I don't quite understand how the gov't will go broke though? We won't be able to pay back the interest and principal on the borrowing with simply customs and other taxes, is that what you mean?
See Lurker, you have me thinking too hard on this topic.
(But seriously, I scared to invest in anything right now.)


Prior to the changes to the Central Bank and the tenure of Mr. Francis, the government of the day controlled the monetary and fiscal policy.

Fiscal Policy is how much the government spends, and how high taxes are and what kind of taxes we have.

Monetary policy is how much is the interest rate and what is the total supply of money in the Bahamas (close to $6 billion) and should we increase it or not.

Mr. Francis insisted on the autonomy of the Governor of the Central Bank in divorcing fiscal policy from monetary policy. It is well within the purview of the government of the day to control fiscal policy.

So the governor of the central bank controls interest rates. The government wants low interest rates, especially the Christie government, because it runs deficits and with low interest rates, the national debt doesn't climb as fast. Also it can borrow more money with lower interest rates.

The governor of the Bank has to resist the political pressure. The political pressure comes to create monetary policy that will make the government look good with the appropriate interest rates, and increasing the money supply and so forth.

Even though the Central Bank by law, has to take the notes of the government, there is an over-riding mandate to keep at least a few hundred million to prop up the Bahamian dollar. It can never lend this money out, otherwise our money will be monopoly money. And we can't just print more money for the same reason. The Central Bank has to keep a tight rein on the money supply. And eventually, it will have no more money or assets to fund the government. It is near that now. That will force the government to go out on the street -- so to speak. This government is reluctant to do so, because it would drive down our credit rating, because our national debt is nearing the 40% of GDP. If it pops over that, no one would be interested in lending us money. And the government spends at least $200 million more than it brings in, so it will go broke.

But there is a fatted calf that they haven't killed yet. A VAT Tax. Currently we have a $6 billion economy. The current tax system levies tax on about $2 billion of that -- the goods coming into the country. That een enough. It doesn't bring in enough money to the government. In a VAT tax, it is a tax on the goods and services. Thus the other $4 billion of the economy could be taxed, and it could save the government, and stop the bruising deficits, and pay down the national debt.

The trouble is that the Christie regime is afraid of implementing a VAT, because they don't know how to do it.

Prior to the changes to the Central Bank and the tenure of Mr. Francis, the government of the day controlled the monetary and fiscal policy.
Fiscal Policy is how much the government spends, and how high taxes are and what kind of taxes we have.
Monetary policy is how much is the interest rate and what is the total supply of money in the Bahamas (close to $6 billion) and should we increase it or not.
Mr. Francis insisted on the autonomy of the Governor of the Central Bank in divorcing fiscal policy from monetary policy. It is well within the purview of the government of the day to control fiscal policy.
So the governor of the central bank controls interest rates. The government wants low interest rates, especially the Christie government, because it runs deficits and with low interest rates, the national debt doesn't climb as fast. Also it can borrow more money with lower interest rates.
The governor of the Bank has to resist the political pressure. The political pressure comes to create monetary policy that will make the government look good with the appropriate interest rates, and increasing the money supply and so forth.
Even though the Central Bank by law, has to take the notes of the government, there is an over-riding mandate to keep at least a few hundred million to prop up the Bahamian dollar. It can never lend this money out, otherwise our money will be monopoly money. And we can't just print more money for the same reason. The Central Bank has to keep a tight rein on the money supply. And eventually, it will have no more money or assets to fund the government. It is near that now. That will force the government to go out on the street -- so to speak. This government is reluctant to do so, because it would drive down our credit rating, because our national debt is nearing the 40% of GDP. If it pops over that, no one would be interested in lending us money. And the government spends at least $200 million more than it brings in, so it will go broke.
But there is a fatted calf that they haven't killed yet. A VAT Tax. Currently we have a $6 billion economy. The current tax system levies tax on about $2 billion of that -- the goods coming into the country. That een enough. It doesn't bring in enough money to the government. In a VAT tax, it is a tax on the goods and services. Thus the other $4 billion of the economy could be taxed, and it could save the government, and stop the bruising deficits, and pay down the national debt.
The trouble is that the Christie regime is afraid of implementing a VAT, because they don't know how to do it.

Good summarization of our dilemma.

Lurker, you forgot to mention that another consideration of level of interest rates is inflation. Interest rates are a means whereby the Central Bank effectively controls the liquidity in the market. Too much liquidity, risk of devaluation etc...

Also, in this present climate, you forgot to mention that it was the commercial banks that lobbied the Central Bank to reduce interest rates because they had too much money in their vaults and they wanted to increase lending. That is why interest rates are so low. If it were anything else, we would be seeing more symptoms of inflation.

To be fair, the FNM ran consecutive deficiets as well; during a period of TREMENDOUS ECONOMIC BOOM (Clinton years) and so you shouldn't imply (at least to me as your post did) that the Christie government is not fiscally prudent. In fact, as a financial fella, I find that the Christie administration has done damn well managing the economy throughout all the turmoil and thing. Check Moodys as they agree.

The Central Bank Reserves have indeed jumped to close to $800 million in August. They have since declined to around $680 million due to insurance outflows but they are still historically at an all time high.
However the figure is deceptive. The Central Bank is the holder of the foreign reserves. They are a sum total of dollar assets held by the Bank. Unfortunately, only $200 million or so is real cash. The rest is government notes.
The government when it runs a deficit has two choices. It can go to international banks, as the FNM did, or it can borrow domestically. This government borrows domestically. If it has to borrow say $100 million US, it goes to the Central Bank and writes a note. The Central Bank by law cannot refuse a government note. (The government also borrows money from the NIB).
When the Central Bank gets the note, it is worth $100 mil. They will eventually collect on it, so it goes on the books as a $100 million US dollar asset, and as such, that figure is added to the reserves figure.
So in fact, most of the rise in the reserves is due to government debt. The economy is actually sinking. The 3.5% growth of the GDP (Gross Domestic Product) will mostly be due to inflation because of the rise in the cost of fuel and energy.
Three weeks ago, Minister of State for Finance James Smith said that unless the Bahamas reforms its tax structure, it will go broke in a few years. The reform will be in the form of a Value Added Tax (VAT).
The economy of the Bahamas is really in the tank. Perry Christie has been unable to get out of the hole. Every year in power, he has increased by the national debt by a minimum of $200 million dollars. We are really going down hill.



This is patently false.

This is patently false.


Considering your name is reason, can you provide a few why this is false? Seems to be some logical thinking and presentation in Lurker's post. Match it with some facts of your own.

The financial reserves of The Bahamas were increased to 2 times the amount that it was under the FNM administration.
Now how some 'a yinna could say dis gub'ment 'aint doin nuttin for da economy, I don't know!


AND WE UNEMPLOYED INCREASED ALMOST BY 100% ALSO! OUR "OUTSIDE" MONIES SERVES MOSTLY THE INTERNATIONAL SOLVENCY NEEDS OF FORIEGN AND LOCAL MERCHANT CLASSES IN THIS COUNTRY. ANOTHER THING YOU FAIL TO REALIZE IS THAT A HEFTY "OUTSIDE" RESERVE SIGNALS TO WORLD THAT WE HAVE ACCESS CASH...THUS DRIVING UP INFLATIONARY SELLING TO THIS COUNTRY...EFFECTIVELY INCREASING THE COST OF LIVING IN THE LOCAL ECONOMY! A NON FLUID RESERVE IS AS GOOD AS A TARGET PAINTED ON OUR BACKS THAT SAYS...I GAT PLENTY MONEY THAT I HAVE NO DAMN CLUE WHAT TO DO WITH!

THIS POLICY IS CLEARLY ONE OF IMF THINKING. NATIONAL ECONOMIES THAT HAVE FOLLOWED THIS THINKING IN THE PAST INEVITABLE FOUND A RAPID INCRESE IN UNEMPLOYMENT IN CONJUNCTION WITH HIGH COST OF LIVING!

THAT'S HOW CHARVEZ GOT TO BECOME SO POPULAR IN HIS COUNTRY...THE IMF WAS SAYING THAT COUNTRY WAS A MODEL OF FISCAL RESPONSIBILITY IN THE REGION, WHILE SOME ECONOMIC THINKERS WAS COMPLAINING OF THE UNHOLY RISE IN UNEMPLOYMENT IN THAT COUNRY! CHECK IT OUT FOR YOURSELF!

YES, WE HAVE A HUGE "OUTSIDE" RESERVE...BUT ALMOST NO DOMESTIC INFRASTRUCTRAL DEVELOPMENT...THE MAIN STAY OUR OUR LOCAL BREAD AND BUTTER! YOU DECIDE!!!!

Good summarization of our dilemma.


In other words, we would be like Jamaica. :biggie:

In other words, we would be like Jamaica. :biggie:

jesus i hope not! my jamaican friend showed me a video about the island -the the gang people who live in the bush gangs and have they shootouts and ting with the police. man it was better than a movie! I couldnt beleive it. I thought tourist went to Kingston until he told me otherwise, I am not going to jamaica anymore because of that video even to see a good friend I just made - and she's police! it's too dangerous there. and the hyperinflation: 500 for a cup of water and that suppose ta be free! god bless the bahamas we gat a lot of work to do o make it better but at least wegat something! The Bahamas the nevy of the Carribbean!

The reserves should have increased, they did nothing for their first three years in office!

I don't know anything about the Reserve system in the Bahamas. But what I do know of the Reserve System in the US, Lurker and Ishaq seem to be absolutely correct, if the Bahamian System was designed after the US system.

Just to feel special I'll toss in an idea of my own. Interest Rates in the Bahamas were low because interest rates in the US were low. If you want to keep the value of the Bahamian dollar equal or relatively equal to the value of the American dollar, interest rates would have to be equal or relatively equal to theirs. I mean, if its cheaper to borrow in the US -- why borrow at a higher rate in the Bahamas??