Log In

Reset Password
BERMUDA | RSS PODCAST

US dollar weakness ‘could help Bermuda

First Prev 1 2 Next Last

If the US budget deadlock is not resolved, Bermuda could benefit from lower costs, an expert in economics said yesterday.

The US Treasury has warned it will run out of money tomorrow — and both Senate and House of Represenatives are working to create a stop-gap package to allow the US government to restore services suspended due to the budget crisis and raise its debt ceiling.

But Peter Everson, who speaks on economics for the Bermuda Chamber of Commerce and also sits on the board of the Association of Bermuda International Companies, said a fall in the dollar if US politicians do not reach agreement could help Bermuda, whose currency is pegged to the US.

Mr Everson said: “It's likely to lead longer term to the dollar weakening and that would help Bermuda because Bermuda's products and services would become cheaper.”

But he said that — in the medium term — the impact on the US man in the street could lead to less being spent on travel and tourism, which could hit Bermuda's already ailing visitor industry.

Mr Everson added that the US is Bermuda's biggest market — but a cheaper dollar could attract more visitors from the UK and Europe.

And Mr Everson said that a decision by Finance Minister to borrow up to $800 million over three years to cover Government deficits could prove to be a smart move.

Mr Everson explained: “There is an important difference for Bermuda because, if the the US doesn't get a reasonable deal worked out, one of the consequences will be an increase in interest rates for the US government.

“When Bermuda goes to the market to borrow, it pays the same rates as the US, with a premium.

“But, because the Ministry of Finance has borrowed for three years, the interest on that borrowing is fixed. That's good news for Bermuda taxpayers.”

Mr Everson added that — like Bermuda — even if a deal is brokered, the US would still have to address the major of problem of its debt levels and high public spending.

he said: “The real issues have to be addressed in Washington and they're similar to Bermuda's issues. The US has promised a lot more services than the taxpayer is willing to pay for.

“I think they will do sufficient to keep the country moving along, but essentially postponing their own version of the SAGE Commission.”

And Bermuda College senior lecturer in economics Craig Simmons backed Mr Everson's view.

He said: “The US may default on its debt tomorrow or the day after. But that's only a symptom of a broader problem. US consumers, businesses and governments have been living beyond their means for decades.

“As a result, they have accumulated a dangerous amount of credit card, student loan, mortgage, business and, of course, government debt.”

Mr Simmons added that debt levels reach crisis point when cash flows slow — and that there were country debt defaults to learn from.

He said: “History is clear. People get over defaults and move on.”

But he warned: “People will forget the lesson that excessive debt accumulation is bad once the deleveraging process reaches an acceptable level.

“The present situation is no different. Comsumers, businesses and governments nust learn to live beneath their means.”

The US row broke out nearly three weeks ago and led to as many as 800,000 federal workers being laid off without pay.

The Republican party rebelled against President Barack Obama and the Democrats' plans for spending and a health insurance overhaul.

Speaker of the House Rep. John Boehner, R-Ohio, walks away from the microphone during a news conference after a House GOP meeting on Capitol Hill on Tuesday, Oct. 15, 2013 in Washington. The federal government remains partially shut down and faces a first-ever default between Oct. 17 and the end of the month. (AP Photo/ Evan Vucci)
Steven Ahrenholz, a furloughed Federal worker, protests outside the Department of Health and Human Services CDC offices, Tuesday, Oct. 15, 2013, in Cincinnati. The government shutdown is entering it's third week. House GOP leaders Tuesday floated a plan to fellow Republicans to counter an emerging Senate deal to reopen the government and forestall an economy-rattling default on U.S. obligations. But the plan got mixed reviews from the rank and file and it was not clear whether it could pass the chamber. (AP Photo/Al Behrman)

You must be Registered or to post comment or to vote.

Published October 16, 2013 at 9:00 am (Updated October 15, 2013 at 7:14 pm)

US dollar weakness ‘could help Bermuda

What you
Need to
Know
1. For a smooth experience with our commenting system we recommend that you use Internet Explorer 10 or higher, Firefox or Chrome Browsers. Additionally please clear both your browser's cache and cookies - How do I clear my cache and cookies?
2. Please respect the use of this community forum and its users.
3. Any poster that insults, threatens or verbally abuses another member, uses defamatory language, or deliberately disrupts discussions will be banned.
4. Users who violate the Terms of Service or any commenting rules will be banned.
5. Please stay on topic. "Trolling" to incite emotional responses and disrupt conversations will be deleted.
6. To understand further what is and isn't allowed and the actions we may take, please read our Terms of Service
7. To report breaches of the Terms of Service use the flag icon