The Biblical story goes that Joseph rose to prominence in ancient Egypt by interpreting the Pharaoh's dream to mean there would be seven years of plenty followed by seven years of famine. To ensure the well being of the people, the excess production of the fat years was stored in warehouses for use during the lean years.

It can be argued today that Bermuda has had its "seven fat years" – indeed many more than seven – and that the lean years may soon be upon us. There are a number of questions that flow from this possibility:

1. Are we really entering a lean economic period or are those who suggest this merely scaremongering – prophets of doom like Jeremiah?

2. If we are entering a lean period, is it due to factors beyond our control or have our own policies, practices, attitudes and behaviours made matters worse than they otherwise would be?

3. What has the Government done during the years of plenty to anticipate the onset of lean years, to prepare itself and encourage the country to prepare for leaner times?

4. Have we as a country put our surplus production into our "warehouses" so that we may tap those resources if a lean period is coming? In other words, what are Bermuda's "warehouses" and how full are they?

Today, I will look at four key sectors in the Bermuda economy – tourism, international business, construction and government – to explore the answers to these questions.

TOURISM

The biggest problem with tourism is to figure out the truth. The Premier's spin doctoring has bamboozled the Bermudian public into false optimism. Facts and truth are not the same thing.

The Premier's public statements have been like a student athlete in a two-man race who is badly beaten by the school champion but reports home to his father that: "The school champion finished next to last, but I finished second."

Our concerns about tourism are many. In the past year, we have pointed out that the overall tourist numbers were inflated by huge increases in cruise visitors while our core business – visitors staying in hotels – remained weak.

Now it appears the cruise lines are calling the shots as we learned that, for the first time in living memory, there will be no regular cruise ships in Hamilton – a decision that cannot be good for Hamilton businesses.

After being fed a consistent diet of optimistic rhetoric, the Premier at the end of July was forced by reality to admit that tourism is in trouble – to admit that all that we had been saying for months was true.

He perhaps is ruing the decision, which we opposed, to raise the airport tax by 40 percent earlier this year, a tax which raised the cost of a Bermuda vacation just when the industry was weakening.

Moreover, figures published by the Caribbean Tourism Organization showed the only country we beat was Guyana – certainly no tourist Mecca. This proves that troubles in tourism are not merely a result of the bad economic environment in the US. If that were so, the effect on other island destinations would be similar to Bermuda.

But the difference in performance is stark, clearly indicating that problems in tourism are Bermuda specific; problems magnified by weak consumer confidence in the US.

Chaos, controversy, resignations and micro management in our North American tourism operations are directly related to tourism's dismal performance. Just as Dr. Brown proclaimed his brief success in previous results, he must shoulder the blame for its continuing debacle and not ignobly try to shift the blame to the US economy.

In tourism development, we have been warning for more than a year that the global credit crunch will work against potential developers. There has been no respite to this situation and there are no signs of change.

The Premier nevertheless created a buzz in the community that things were happening but these efforts again had to give way to economic reality. Many of the financial arrangements for these developments have been predicated on the sale of fractional units. The sale of these fractionals (mainly to foreigners) has foundered recently, further undermining the chances of future resort development.

All this is clear proof that the Bermuda Government has had no clue about Bermuda's place in the global economy and its effects on us. In February's Budget debate I observed that "... the government has made no provision for an economic downturn that is widely expected. This is irresponsible, just as it would be for a sailor not to trim his sails when storm clouds gather. It is prudent to prepare for a storm whether it be meteorological or economic."

INTERNATIONAL BUSINESS

Most people say to me, 'surely things aren't as bad in this our number one sector'? Indicators in IB are much more subtle than in tourism, but the indicators are out there.

A recent survey by Sloane & Company questioned 220 executives in North America, London, Asia and Latin America about Bermuda's services in the global business arena. Here are their conclusions:

¦ A physical presence in the market makes a meaningful difference in awareness and perceptions.

¦ Bermuda remains well-regarded and respected particularly in key markets.

¦ Competition is growing and is a threat.

¦ Barriers to doing business remain: cost, bureaucracy and geographic location.

¦ New barriers to doing business are emerging: political concerns/ government inhospitable to international business community.

Anecdotally, one New York lawyer said that a reason for doing business elsewhere was because: "We've seen a change in mindset in Bermuda that concerns us a little and so we are really considering places like Vermont for a lot of our captive work."

We cannot control the competitive threat nor our geography, but we can, to some extent, control our costs and, hugely, the simplicity of process and the Government's attitude to our international business partners.

Simplicity of process means that Bermuda is too bureaucratic, particularly to get approvals whether they be work permits or company incorporations from Government. Competing jurisdictions, particularly Cayman, are laps ahead of us in this regard.

Clearly, the most troubling of these concerns is that there is a perception that the Bermuda Government is inhospitable to international business. IB is overwhelmingly Bermuda's number one sector, providing most of our foreign exchange earnings, most of our growth and most jobs, directly and indirectly, yet the industry perceives the Government to be increasingly "inhospitable" towards it.

What kind of nonsense is that? The people who provided these findings are the same people who are responsible for sending business here or somewhere else. They are Bermuda's clients.

We cannot have our clients holding this perception of Bermuda. The Government must tell Bermudians what their plan is to redress this situation.

Since my Budget Speech there have been some further negative developments in the IB arena, relative to our two marquee reinsurance institutions.

One of these institutions has decided to move its charter to Switzerland (one of the most expensive places on Earth) from Cayman (we had hoped it would be to Bermuda). The company said in a press release: "We believe that this change in our corporate residency will provide us with better strategic flexibility, a solid legal and regulatory environment, and improved ability to manage our capital and our businesses."

Does this imply Bermuda no longer meets these criteria? Hmmm! There is often a certain herd instinct in business. For example, Jardine Matheson's move to Bermuda set in motion an avalanche of other companies from Hong Kong coming to Bermuda.

Since the Switzerland decision mentioned above, I understand most other reinsurance companies have hired consultants to study the option. Could the move to Switzerland precipitate another migration of the herd? The other marquee reinsurer, which has been hurt by the subprime credit crisis, reported huge losses and is slashing 47 jobs here in Bermuda. The new CEO says the job losses are NOT connected to the subprime crisis.

If that is so, then one has to conclude the job cuts are connected to a general weakness in the reinsurance marketplace, a conclusion that is far more worrying in its implications for the rest of our insurance/reinsurance sector.

I have said for many years that we Bermudians are too complacent. We need to wake up to the shifting sands of the competitive global marketplace.

CONSTRUCTION

Many Bermudians have been lulled into a false sense of security because they see the City of Hamilton full of cranes. Those cranes represent investment decisions made at least two to three years ago.

When those buildings are finished next year, or shortly thereafter, what then? Where will the next set of projects come from: resort development, condos, fractionals, office blocks? At this time they all seem unlikely.

GOVERNMENT

The only sector that might save the day is the public sector – Government.

Before we look into that, let us return to the Pharaoh storing his excess wheat in warehouses in anticipation of famine. What are our modern day "warehouses" where we put aside assets for hard times? The answer is bank accounts, property, securities and business enterprises; but you have to take these assets net of any debt you might have.

Official statistics show that since 2000 loans to Bermuda residents have increased 130 percent. Bermuda residents are borrowing upward of 1.5 billion Bermuda dollars more from local banks than they have on deposit. Bermudians have large property holdings but a substantial proportion of that is surely mortgaged. So, nationally, our "warehouses" are not empty, consisting of whatever net value is in property, securities and business enterprises.

For the average salaried person, however, who may not have a business enterprise, but is mortgaged up to his eyeballs for a recently acquired home, the warehouse would be bare.

What about the Government's "warehouses?" What state are they in? While Government has run surpluses on current account, their spending on capital projects, particularly in recent years, has far outstripped current account surpluses. National debt has risen sharply in the past four years to $345 million projected for 2008.

In the case of Government, the greater the debt level the less is their potential for borrowing during difficult times. In other words, the greater their debt the smaller is their "warehouse."

My good friend, economist Craig Simmons, recently correctly stated on TV that Government spending patterns should be "counter cyclical". This means that, when the economy is strong and Government receipts are strong, Government should restrict spending, otherwise it will overheat the economy, causing inflation.

During a recession, government should expand spending to take up the slack in the economy and provide jobs lost during the down turn. That's how it should work.

In today's Bermuda, the reality is somewhat different. This Government, under this Finance Minister and this Premier, has done the opposite: It has spent like a drunken sailor while the economy has been very strong, helping it to overheat.

If next year the economy cools to the extent that there is a recession, how is Government going to help the economy by providing counter cyclical stimulus?

As the economy cools, Government receipts will decline but the current account expenditures will remain largely constant because much of it is in salaries of civil servants. The current account will sink into a deficit position.

To finance this, the Minister could increase taxes or fire civil servants – but this would be at precisely the wrong time for such a move and would exacerbate the slowdown and increase job losses. Alternatively, they would have to increase the national debt, but this would likely be more expensive because it would be added to the debt that is already outstanding from previous overspending.

What we call fiscal prudence is the same concept as in Pharaoh's dream: filling warehouses during times of plenty. Our Government has not followed this age old tenet.

Unlike Jeremiah, I do not have the gift of prophecy. I merely observe economic trends and leading indicators to help me anticipate likely changes in the economic climate.

This Government has not done this and has therefore exercised very poor judgment in managing itself and our economy. Moreover, Government itself has been central to some of the key problems, both in tourism and international business, problems that will impact us for the next several years.

Bermuda needs a steady hand at the helm, because all signs continue to say it is going to get rough.

We will have more to say on the situation in the days ahead, including steps we can take to prepare ourselves.