Monday, May 3, 2010

BELIZE INFLATION VERSUS TAX RAISES !

BELIZE INFLATION VERSUS RAISING TAXES!

by Ray Auxillou, May 2010.



Belize has this horrendous national debt. Ordinarily this results in hyper inflation. Because Belize is an agrarian country and the poorer class of population, either grow their own food, or can afford to buy local produced food. The hyper inflation has never been realized in Belize yet. Governments around the world, DREAD the idea of inflation. It can do more damage to a country like Belize, than a Guatemalan military invasion.

Still, when economists around the world keep saying any government can handle around 3% of GDP as a debt load, but 10% is really pushing it into the inflation danger zone, we in Belize with our 107% of GDP debt load should be paying attention to what the UDP government are doing.

All kinds of warning flags from Iceland, to Spain, Greece, Italy and Portugal are going up over in Europe because of increasing national debt loads. The European Union have a bad case of it, because while they print a common currency, the EU dollar; the individual countries control their own economic budget policies. Human nature will take the course of the small producers socking it to their big brothers. The same story is found in the Citrus Growers Association, of the Belize Citrus Industry. Sort of a mini-Europe. It got so bad that the big few citrus producers pulled out and refuse to pay the debts of the couple hundred small producers. The current crisis in the EU is over who will pay for those countries overspending? Should a sober well managed productive rich country like Germany, cover all the lesser badly managed countries debts? This may break up the European Union, or force a joining into one managed German economic Central Bank package for Europe?

In Belize, the debt versus raising taxes question has been answered. The UDP will raise taxes instead of reducing the debt through austerity and better management.. Indeed, you can predict quite well, the raise in the GST over the next dozen years incrementally, until it gets over 25% GST. You can see it coming, because our two political party system are delivering a SOCIALIST GOVERNMENT, bigger than we can afford. It is always the case in socialist governments, as nice as they are; with freebies and services for every group under the sun. Makes for a nice country in which to live. The debt continues to increase though, as all the revenues go to support a BIG SOCIALIST GOVERNMENT. This results ultimately in INFLATION, destroys savings, eventually destroying both the economy and the people making up the nation of Belize.

One answer is to increase GDP and in the past in Belize, this is mostly done by population growth, a lot of which comes from people immigrating into Belize for the nice life. There has been a floating number of new industries, but ultimately, GDP growth through export light manufacturing production will have to take a different course than at present. This is the only proven method of increasing growth. The Prime Minister recently established a THINK TANK of academic educated people, to give him options and ideas. Not a bad idea. Though he sounds a lot like a frantic flailing drowning man, clutching at straws to stay afloat.

There has been a lot of political rhetoric about some big financial institution buying off our troublesome bonds at a concessionary interest rate to us. I doubt our bond holders are going to give up such a lucrative interest bonanza? At least not without a serious shock. That shock being a DEFAULT of the SUPER BOND.

INFLATION is the big bogey in all of this. Ask Hugo Chavez? When inflation starts escalating, things will go down hill, very fast.

We have choices, but like GREECE, it doesn't look like our politicians can make them. Said Musa, the last Prime Minister chose austerity and it worked. Dean Barrow the new Prime Minister has chose increasing taxes as his methodology.

2 comments:

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Douglas said...

It is good. Keeps me up to date on Belize. Followed Ray from his old site.