Bermuda College lecturer and local economist Craig Simmons spoke out this week on the impact of the US recession on the island.

He believes that the repercussions of the current credit crunch will soon be felt in all sectors, from international business to real estate to tourism.

"The current crisis will lead to a fall in employment, especially in the leading sectors," he said.

"These include financial and risk-taking activities of international businesses, as well as the accounting, auditing and consulting activities that support international businesses."

Mr. Simmons explained the knock-on effect of unemployment in Bermuda's leading business sectors as "devastating".

"As employment falls, so too will disposable incomes that support spending on renovations, recreation, transportation, food, and education," he said.

"The multiplier or knock-on effect could potentially be devastating for real estate prices in particular, since these are propped up by excessive demand emanating from international business."

He foresees a decline in foreign investment in Bermuda as a result of the ravaged US economy.

"Foreign currency will not be as plentiful for at least three reasons," he explained.

"Firstly, resident employee compensation from international business exceeded $1.2 billion in 2007. This number will almost certainly not be exceeded in 2008 and 2009.

"Secondly, because of falling stock market and real estate prices worldwide, one would expect investment income from assets held overseas to also decrease.

"Thirdly, tourist spending will likely fall as the real economy in the US struggles to stave off a recession, not to mention the negative wealth effect associated with an imploding financial services sector."

Mr. Simmons is pessimistic about the ability of local financial services businesses to survive the current economic crisis unscathed.

"Unlike natural disasters like hurricanes or human-created disasters like 9/11, it is hard to see how any good can come out of a financial crisis," he said.

"The nature of the financial services industry is such that when a bank or an insurance company fails, the probability that one or more of the remaining companies will fail increases dramatically.

"This is very different than, say, Trimingham's failing. The remaining retailers vied for former Trimingham's customers and employees and did quite well without the failed firm. The financial services sector is very different."

The economist and lecturer explained the interdependence of Bermuda's banks and insurance companies in layman's terms

"Banks don't have much money of their own," he said. "They accept deposits and lend those deposits to god knows who, offering a relatively low interest rate to depositors and charging a relatively high rate to borrowers.

"For example, I might borrow money from Butterfield Bank to buy a house or boat, but the seller of the house or boat may be a customer of Bank of Bermuda. The Butterfield Bank loan ends up as a deposit at Bank of Bermuda.

"If Bank of Bermuda gets itself into trouble, it may be difficult for Butterfield Bank to recall the loan without heavy losses, especially if the resale value of the house or boat decreases significantly."