worrell-sinckler

Dr. Mascoll Exposes the Central Bank

Dr. Clyde Mascoll

Dr. Clyde Mascoll

BU read Dr. Clyde Mascoll’s weekly column with great interest. The fact that it has not garnered any serious critique on the talk shows and on social media says a lot about our level of discernment.  An advantage over the traditional media is that we (social media) tell it like it is.

Last week the BLP member of parliament for St.James North Edmund Hinkson made the attention grabbing request for Minister Denis Lowe to repay the state the financial loss suffered as a result of his error in judgement concerning the NCC workers matter. To add to Hinkson’s call the BU household calls on the commercial banks of Barbados to redistribute the profit to customers collected as a result of the Governor of the Central Bank Delisle Worrell removal of the minimum savings rate commercials banks had to pay their customers.

Read Mascoll’s column to understand how one of the biggest scams in our post Independence history is being perpetrated on Barbadians. Now go and buy some savings bonds!

WHAT MATTERS MOST: The interest rate gap

CLYDE MASCOLL,

Added 20 October 2016

whatmattersmost-new

 THE LATE PROFESSOR Roland Craigwell once told me that “a man who has time to read is a dangerous man”. It was his way of emphasising the need to read almost everything in an area of study if you want to present your case.

Those words never stopped resonating with me. He reinforced the need to never go public with anything on the economy, unless I have verified the evidence. In this vein, I read all that I can on issues in the Barbados economy. This requires reading material from the distant past.

There are two issues that engaged me over the last weekend: (1) the increasing gap between loan rates and deposit rates, and (2) the ongoing printing of money that some still want to deny.

In its most recent economic press release, it was noted that the financing needs of the Government had widened the gap between the United States and Barbadian treasury bill rates.

The Central Bank attempted to narrow the gap by intervening in the treasury bill auction after the commercial banks were allowed to set the minimum deposit rate. The concern now is “since April 2015, commercial banks have lowered their deposit rates more substantially than their loan rates”.

First of all, why was the Central Bank trying to narrow the gap between the two rates? There is no good economic reason why the local treasury bill rate should mimic that of the United States.

Why should the widening interest rate spread surprise anyone? This caused me to read material from the past. Worrell (1997) identified powerful reasons why the Central Bank should lead on changes in interest rates. He suggested that “it is the most fully informed, being the repository of a wealth of data, producing the most comprehensive assessment of the economy and maintaining constant economic oversight”.

In analysing interest rate spreads in the past, he noted in periods of Central Bank regulation, they widened. He concluded that the Central Bank “was never able to persuade the banks to agree on narrower spreads and was wisely never willing to risk evasion by defying the banks’ wishes”. So what has changed to expect the banks to act differently now?

On the second issue, Worrell (1997) wrote that “the Central Bank of Barbados was concerned from its inception with the need to avoid money creation [printing of money] through lending to Government”. He also stated “there is no problem of excessive money if banks are happy to leave excess cash with the Central Bank at no interest rate, as they have for extended periods in countries that have stable exchange rates”.

There is evidence that the banks have been leaving excess cash with the Central Bank, which it is using to help finance Government spending. For example, Government needed $273 million in domestic financing between April and June. It received $92 million from the National Insurance Scheme and the private sector not including commercial banks. In fact, the banks reduced their lending to Government by $120 million over the quarter.

As a result, the Central Bank had to provide $301 million in financing to the Government. It did so by using the commercial banks’ additional deposits with the Central Bank of $198 million for the same period April to June. This means that the Central Bank had to print money to the tune of $103 million.

Why did the commercial banks reduce their lending to Government but still put additional deposits at the Central Bank? In the face of excess cash, there is still a problem with financing Government spending from domestic sources.

Why is the Central Bank holding $775 million in treasury bills and $592 million in debentures? The Central Bank is using the commercial banks’ deposits and the printing of money to purchase Government securities. Worrell (1997) also found that “in circumstances where banks were not actively seeking to employ excess cash, the Central Bank has never been able to effect a sale of bills by offering a more attractive return on them”.

In the current circumstances, the Central Bank has become too big a player in the treasury bill market and therefore the banks are prepared to take advantage of the low deposit rates. This is done by widening the spread, while the loan rates are slightly more attractive.

The Central Bank has tried to use monetary policy to accommodate fiscal madness. There is scope for monetary policy to support fiscal adjustment that is well thought out. It cannot correct fiscal adjustment that is inappropriate and insufficient.

• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email: clyde_mascoll@hotmail.com

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102 Comments on “Dr. Mascoll Exposes the Central Bank”

  1. Hal Austin October 23, 2016 at 9:36 AM #

    David,
    One economic failure of this government is its printing of money to pay civil servants’ salaries. QE is one of those policies that can b defined by who is doing the defining, like Humpty Dumpty.
    When first introduced by the Japanese, to curb their over-saving, the government gave cash to households expecting them to go out and spend, in a Keynesian manner; instead they saved the money.
    In Britain, something that I wrote very strongly against, the Bank of England used the money to buy gilts off insurance companies and banks, expecting them to then offer more funds to businesses and home buyers. Instead they built up their liquidity.
    I said, and was typically ignored, that the money should have gone towards a mortgage-lending mutual bank.
    For Barbados, I suggested that government should print money – not borrow from the Chinese – to rebuild the inner city, Nelson Street and its environs, complete with architecturally designed apartments, shops offices and recreational spaces, offering the present residents first refusals, then the young middle class professionals (all those coming out of university and still living with their parents and grand parents), and small craftspeople.
    I also suggested they should move the awful and grossly loss-making Transport Board out to St John (Four X Road), and rebuild that prime land with modern apartments, a leisure club, tennis, basketball and netball courts and include Weymouth as part of the plan. Four X Roads will become a new town with tax incentives to businesses to move there.
    One benefit will be to ease traffic heading in to town every morning.
    Funding will come, not from QE, but from off-plan sales of the apartments, through mortgages available from the mutual mortgage bank.
    In other words, the cost of this infrastructural development will be spread over generations and will benefit the whole nation.
    If Messrs Sinckler and Stuart want more of these ideas I will offer them for free, as part of my contribution to our independence anniversary.

    Like

  2. Dompey October 24, 2016 at 9:43 AM #

    William Skinner

    Here is the ironic thing about our educational system: the Minister of Financial and Economic Affairs the Hon. Christopher Sinckler, took the Common Entry Examination and ended up at the Garrison, and many of his classmates took the same examination and ended up at schools of national reputation like Harrison College, Lodge and Combermere etc. And after Mr. Sinkler completed his secondary and tertiary education, he ended up at the UWI lecturing to the same classmates who attended: Harrison College, Lodge and Combermere etc. Piece, how did this happened?

    Like

  3. Dompey October 24, 2016 at 9:53 AM #

    Piece

    Thumbs up for the Barbadian educational system. Boy when someone attends a secondary rated school and ends up lecturing to students who attended secondary schools of national reputation it speaks volums of our educational system .👌👌👌👌👌👌👌👌👌

    Like

  4. William Skinner October 24, 2016 at 2:19 PM #

    The Wild Coot column in today’s nation
    should be a very informative piece as to how
    the Barbados economy was undermined by
    Barbados Shipping and Trading.

    Like

  5. millertheanunnaki October 25, 2016 at 5:09 PM #

    @David (BU):

    Do you have access to the load of bullshit the Guv of the CB has delivered as a report on the Qtr. 3 economic performance?

    What is the country’s foreign reserves position?

    Like

  6. David October 25, 2016 at 6:05 PM #

    @Miller

    Will post the PDF shortly. You need to respect the Guv’s review!

    On Tue, Oct 25, 2016 at 9:09 PM, Barbados Underground wrote:

    >

    Like

  7. abajanhowe November 3, 2016 at 10:55 AM #

    Here is an excerpt from another news media that has relevance to BU readers.

    “BANKS are Broke, Central Banks are Criminal Organizations and the Taxpayers are being taken for a ride of their lifetime (and your children’s and their children’s lifetime)!

    However, the system is so all-encompassing that nothing printed and/or otherwise told would make much of a difference — unless people rise up en masse. Ain’t going to happen! Remember, money replaced the chains.

    Everytime a Central Bank prints money, it is doing something that YOU would be arrested for (counterfeiting), and for a long time…but they get to be the top GANGSTERS. I am sure you remember your Central Bank in Barbados RECENTLY printing over $114,000,000 (so they say). You’ll never see that money. And if it’s PRINTED it has to be accounted for and repaid — and guess who is there to wipe up the mess — YOU, the taxpayers.
    As you can see, every now and again, the news media this extract was taken from moves away from the salacious blogs to post things that are exceedingly important. All things are important and all IN-FORM-ATION should be used as tools to pull thoughts together cohesively.
    It’s time to stop being afraid. That’s what I say!”

    Like

  8. millertheanunnaki November 3, 2016 at 12:13 PM #

    @ David October 25, 2016 at 6:05 PM #

    Respect my donkey! Why should the statements made by a liar be accepted as the Truth?

    Academic, intellectual and professional respect has to be earned not demanded.

    Until he provides a proper account of the missing $300 million in foreign reserves nothing should be taken as valid from that source.

    What would you call the continuing printing of money where there is no corresponding economic production or output?

    Isn’t it a case of saddling innocent future generations with financial burdens they will not be benefiting from?

    Can you explain how the spending by visitors in the local economy can increase ‘significantly’ but the foreign reserves are regressing? What massive capital works programmes are in train to account for this on-going decline?

    Like

  9. Hal Austin February 2, 2017 at 2:33 PM #

    In today’s Nation Online, three important Barbadian economists have commented on the theory of foreign reserves. They are former diplomat Charlie Skeete, Prof Avinash Persaud and Prof Winston Moore.
    One thing they all share is a rigid orthodoxy of the type which ran from about 1914 to the early 1960s. Nowhere is there any mention of central bank hedging, or the role of corporate treasuries in cash management.
    There is no explicit mention of purchasing power parity or indeed of acknowledgement of foreign exchange theory.
    In economic history, as in science, there are often Kuhnian revolutions.
    I still say that if we were to play the currencies futures markets there will be no need to warehouse Bds$600m, when that money could be usefully used to fund small businesses and infrastructural developments.
    Let the debate continue.

    Like

  10. Artax February 2, 2017 at 3:00 PM #

    @ Hal Austin

    Are you suggesting government should “gamble” with tax revenue by investing in financial derivatives?

    Are you prepared to share with BU, how many governments invested in futures, the measure of success and what were the ROI?

    Would you care to explain how government should go about and what measures they should implement to facilitate such investments?

    rather than just putting the suggestion “out there,” please explain the process to me, since I’m “layman.”

    Like

  11. NorthernObserver February 2, 2017 at 3:11 PM #

    @Artax
    this is not as unusual as you might think.
    This from the Cdn Pension Plan Investment Board
    “Public equity holdings
    CPPIB invests in publicly-traded equity and fixed income securities, and in listed and over-the-counter derivatives that are based upon the price of these assets, commodities, currencies and interest rates.
    http://www.cppib.com/en/what-we-do/our-investments/

    You will also note they have a highly skilled team.

    Like

  12. Artax February 2, 2017 at 3:44 PM #

    @ NothernObserver

    I never mentioned anything was “unusual,” I only asked that evidence be presented to substantiate Austin’s suggestions. What is wrong with that?

    According to the information you provided, the CPPIB is “a professional investment management organization that invests the assets of the Canada Pension Plan not currently needed to pay pension, disability and survivor benefits. It does not state the Canadian government is using tax revenue to invest in financial derivatives, as is being suggested by Austin.

    It’s okay to describe economic policy as being archaic, but when you make suggestions, you should be willing to explain viability.

    Like

  13. Hal Austin February 2, 2017 at 4:06 PM #

    Thanks, Northernobserver.
    I am not sure what Artax is seeking. I have made the point that when a new paradigm emerges it is disruptive. It took 2000 years before Euclidean geometry was overturned; orthodox foreign reserve theory ruled from about 1914 to 1960; currency derivatives came on board in the 1980s.
    All financial products involve risks, currency derivatives are no riskier than holding foreign reserves in US institutions. Until Sept 2008, Lehman Bros was one of the soundest financial operations in the world.
    Foreign reserves need a third party underwriter like most other financial products.
    To deal in derivatives we will need local experts or we could buy in talent.
    Of interest to me is that the three experts I mentioned remain fixed to an orthodoxy that has been out of fashion in modern balance of payments theory.
    In the Nation Online, Charlie Skeete calls for cooperation with the IMF, but he did not say if that was the Washington Consensus IMF, or the post-Olivier Blanchard IMF, in which austerity was rejected.
    Prof Moore gives a lesson in foreign reserves, including the surprising claim that the 12-week period for which the reserves are meant was more or less picked from the sky. But I thought economics was meant to be a science.
    In fact, it was meant to support the economy in case of a shock, what Walter would call a once in a two hundred year event.
    To get around this, I suggested de-pegging from the Greenback, fixing to a basket of currencies and commodities, and playing the futures market. That would free-up cash for important investments.
    I have made the point that our last shock was Sept 22, 1955, and we survived that quite well, as the governor of the central bank knows. St Giles was used to house people whose hoes had blown down and we were sent to St Barnabas. I loved it.
    And Prof Persaud made the point that our reputation is such in the international markets that no fixed income fund manager would buy Barbadian bonds.
    I have also made that point on a number of occasions.
    I have pointed out that it was a scam asking retail investors to invests in so-called Savings Bond. Why should small investors lend money to the government?
    I made the point that government was likely to default.
    Three top economists: one from Washington, one from London and one from Cave Hill, all with the same prevailing orthodoxy.
    That, I suggest Artax, is the greater debate, not juvenile ones of testing my knowledge.

    Like

  14. A Dullard February 2, 2017 at 4:35 PM #

    The use of derivatives as a risk management tool is standard for large pools of assets which are exposed to currency risk. The use of derivatives is not necessarily a gamble if the underlying contingent claims are well understood. In fact derivatives are highly effective and sometimes even crucial as a device in the management of all kinds of market risks.
    The use of currency overlay forwards, for example is routine and not as esoteric some are intimating. Whether these sort of sophisticated approaches are needed or even wanted in Bim is another story.

    Like

  15. Hal Austin February 2, 2017 at 4:39 PM #

    Thanks, Dullard. We do not have the expertise, but they can be trained.

    Like

  16. NorthernObserver February 2, 2017 at 5:10 PM #

    @HA
    “We do not have the expertise, but they can be trained.”. I would be very cautious on this approach. You still need liquid reserves to facilitate trade. And the amount we are discussing is relatively small. I would think one is better off hiring the CPPIB, or its equivalent in London or NewYork who are not only well experienced, but are similarly risk averse, versus the investment banks. or other derivative trading houses.
    Possibly a longer term approach is training, but even the big firms in the Caribbean which operate in multiple countries with multiple currencies, sub contract this function.

    Like

  17. Artax February 2, 2017 at 5:40 PM #

    @ Hal Austin

    It seems as though you become agitated when anyone challenges your suggestions e.g.: “That, I suggest Artax, is the greater debate, not juvenile ones of testing my knowledge.” So far, “your knowledge” does not give a definitive description of how the investments should be made, but mere generalized statements on the issue.

    Mentioning “that our last shock was Sept 22, 1955, and we survived that quite well,” is not a very good example, because the economic situation/circumstances were different if compared with this era. Additionally, you must also take into consideration that Barbados was under England’s sovereignty and it was their duty to “take care” of the island at that time.

    I am not in any way “knocking” your suggestion, I however believe you should discuss it further. I also believe that, if government decides to invest in derivatives, there may be a need to create a statutory/quasi government organization or use the Financial Services Commission as an oversight board, which would:

    1) Establish specific policies and procedures necessary to minimize a government’s exposure to potential loss in connection with its financial management.

    2) Explore legalities, i.e. if laws are on the statute books or procurement statutes specifically to facilitate such investments, have the constitutional authority to execute investments and provisions limiting authority to incur any debt that may result from the transactions.

    3) Implement accounting and internal control procedures. For example, establish criteria for the use of the derivatives; consult with the rating agencies; monitoring the pricing process; periodic training; reporting the use of derivatives in accordance with GAAP; internal/external audits to determine if the program is functioning in accordance with established objectives.

    These are just a few examples.

    Like

  18. Piece Uh De Rock Yeah Right - INRI February 2, 2017 at 6:28 PM #

    @ Artaxerxes

    I am not defending Hal Austin here.

    One I hold no brief for Mr. Austin, and two, he can defend himself (though the ole man is aware that he is a Bajan living in the UK for all these years and we dun know about their state of mind)

    But I would suggest this to you for your rumination.

    De ole man been pun BU talking bout SmartBoards and E-Learning environments from de time Adam was a lad and jes a few days ago de ole man notice dat Aaron and Christina Truss and some Spanish people donate a classroom to Harsun College for $85,000 smackeroos.

    Now I know that you gine ask if i get a cent but no please but you is a man dat know dat dere is nufin dat de ole man suggest in BIM dat i gine get paid for heheheheheheheh.

    Hal if de ole man memory serve he correct is a Piece Uh Financial Consultant, unlike me who Walter PPK call a Piece Uh badword (heheheheheheh) so de ole man wud put it to you that he is alluding to these derivatives and the specific types while keeping his secrets to himself.

    You dun know that he is living in the UK with its more silent and deadly version of “Lets Make America Great Again!!!” read keep out the foreigners and, no matter how long Hal and he udder mad west injuns live deah, you and I dun know that Brexit means that dem going start kicking our we niggers from cross deah too.

    It is only de ole man who does come heah and expose me hand to everybody but Hal ent stan in Englant fuh all dat time to be a certifiable madman so he holding his cards close to his chest.

    Liked by 1 person

  19. Hal Austin February 3, 2017 at 1:29 PM #

    Piece of the rock

    You are putting up a straw man. I am no financial consultant. I am a simple retired journalist, born in the Ivy and still have a great affection for the place and its people. Nothing more.
    As to being mad, I must be for spending so much time discussing a failing state.

    Like

  20. Bush Tea February 3, 2017 at 3:06 PM #

    Well Bushie is no financial analyst either, …but the Bushman knows shiite when he smells it.

    All these ‘economists people’ (whatever the hell those are) are walking around talking shiite about a VERY SIMPLE problem.

    The Jackasses we have in government are spending more money than they are taking in.
    No matter how much more they take in…they keep spending more.

    The people of Barbados are unwilling to face this fact because 95% of the ingrunt brass bowls are ALSO doing the same thing in their personal lives…. living on credit and credit cards.

    We have been doing the shiite for DECADES now, and have accumulated significant debt …even though we have sold off all the assets that we came and found.

    The ‘FOREX’ or ‘savings’ that we claim to have …are just shiite mirages….. mostly BORROWED money, at high interest rates deposited in an account to ‘front’ as ‘savings’.

    When asked the options available to us, …, these ‘economists’ hedge around, mumbling all kinds of nonsense about ‘printing money’, lowering the deficit, and sending home people.

    ALL A LOTTA SHIITE.

    WE HAVE TO START PAYING OFF OUR DAMN DEBTS…..and then learning to live on whatever is left.
    Far from ‘reducing the deficit (the amount spent every damn year that we do not have), we should FIRST make interest and a principal payment….. THEN decide how we will live on what’s left…… ENFORCE A SURPLUS.

    Far from ‘printing money’ (which really means writing BOUNCED CHEQUES), we should cut back on wastage and stamp down on INEFFICIENCY….while emphasising productivity.

    Instead of talking shiite, we should institute a universal, permanent, wages and salaries cut across the whole island, by 20% up to $100k, 30% between $100k &$200K, and 40% for those with salaries above$200K …….with immediate effect…..and who don’t like it can join Money B in Canada…

    Most importantly, for ALL future considerations, productivity-merit-considerations shall govern all promotions (and even retention of positions) and pay increases.

    ‘Economics’ Bushie’s black donkey…
    ….these are the common sense steps that ANY sane housewife would take when faced with this well known nonsense….

    Like

  21. Hal Austin February 3, 2017 at 3:17 PM #

    Here is the latest on the productivity trap: a new paper by three economists (Daniel Hamermesh, Kayie Genadek and Michael Burda) has concluded that black people are lazy, that is why is output per capita is lower than whites and Asians.
    No comment from me.

    Like

  22. Bush Tea February 3, 2017 at 4:29 PM #

    @ Hal
    the study is probably correct … if ‘lazy’ means not being greedy and selfish enough to commit your whole being to accumulating shiite material stuff. Bushie thinks that it is much worse…. brass bowlery.

    Black people do not do well at albino-centricity.
    Black people were meant to grow in a community-centric philosophy, as exemplified by the sou-sou, village council, and the extended family network.

    Brass bowlery is trying to qualify for the olympics in baseball …because you see others playing that sport on TV, …when you are unbeatable in road tennis.

    Like

  23. Vincent Haynes February 3, 2017 at 4:53 PM #

    8 Wealthiest and Most Influential People From Jamaica – Atlanta Black Star
    1-dot
    Atlanta Black Star · Leighton Dexter Vernon · 31 December 2014
    http://atlantablackstar.com/2014/12/31/8-wealthiest-and-most-influential-people-from-jamaica/
    ………………………………….

    Bushie

    Why did you not take the cue from Hal,when something is so obviously alt-facts you let it pass.

    The above represents only one island of Pelaus and I can bring more.

    But not you…….you need to vindicate your nonsense theories at all costs even agreeing with economists who have no scientific base,you will grab at everything you misogynist.

    Like

  24. Sargeant February 3, 2017 at 5:43 PM #

    @Northern
    Just a little aside about CPPIB

    I caught an interview on Metro morning (CBC) with the chap leading that organization and it was very impressive, he seems to be a true professional. I read a profile and he started out as a medical doctor after graduating from Cambridge and switched careers after practicing for a year.

    BTW he is a Goldman Sachs alumnus.

    Like

  25. Prodigal Son February 3, 2017 at 5:58 PM #

    I saw a little bit of the Governor’s performance on DLPTV last night. He said the BRA is taking less money monthly than the government is spending thus causing the problems with the current account deficit.

    So how was the government in position to restore the 10% to themselves and back dated it to April 2016? Would this restoration not have the same effect on the current account deficit?

    What idiots! They have to go!

    Like

  26. Sargeant February 3, 2017 at 6:22 PM #

    Trump signed an order rolling back Wall Street regulations, “Gordon Gekko” lives and “Greed is good’’ is the new mantra.

    See Y’all in a few years when someone else is cleaning up the mess, instead of derivatives the new product will be “bereavatives” for the lemmings who are lured to the promise of Wall Street; Wild Wild West here we come

    Here is a throwback video from the 90’s with an apt title

    Like

  27. Bush Tea February 3, 2017 at 10:54 PM #

    @ Vincent
    Boss, why don’t you stay on Facebook …where ignorance is bliss nuh?
    What a silly response….
    What did you intend to prove by tossing up an inaccurate, poorly researched article on Jamaica ….which identifies a bunch of mostly albino-ish citizens who are sickeningly rich?

    Even if they were all black – how would that counter Bushie’s response to Hal? Have you ever been to Jamaica? Have you seen the level of poverty and hopelessness there …and where-ever blacks try to be exploiters of greed and selfishness?

    Steupssss
    …eight billionaires bushes black donkey!!!!

    Man Vincent, you don’t even seem capable of grasping how much you don’t understand… so you will never learn anything.

    Like

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