The Global Economy, Vanuatu and You

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					           “The Global Economy, Vanuatu and You”
Phil Manhire
                                             enough to match the increase in       (just for something completely            sold to them as "AAA Secured
                                             the price of groceries, electricity   different!) to repair the damage          Bonds" really are debts of
                                             and the like, thereby suggesting      done by themselves and the Central        unemployed                  alcoholics.
                                             that the art of “monopoly             Banks over the past several decades,      Nevertheless, the bond prices
                                             opportunism” is alive and well        then I suggest that 2013 will prove to    continuously climb - and the
                                             here;                                 be     a    non-event     for      the    securities soon become the hottest-
                                            A marked reduction in the             commencement of these projects.           selling items for some of the nation's
                                             demand for goods and services                                                   leading brokerage houses.
                                                                                   It is disturbing to know that the fate
                                             that fall into the category of
                                                                                   of the global economy is in the hands     One day, even though the bond
                                             “discretionary income” spending.
                                                                                   of so few, particularly when those        prices still are climbing, a risk
                                             Seriously, if you are finding that
                                                                                   few have strong self-interests at         manager at the original local bank
                                             your pay packet or business
                                                                                   stake in maintaining the status quo.      decides that the time has come to
It’s not often that Central Banks get        income doesn’t go far enough
                                                                                                                             demand payment on the debts
any praise from me but credit must           toward paying your essential bills
                                                                                                                             incurred by the drinkers at Heidi's
be given where due.                          such as power, water, rent,           UNDERSTANDING DERIVITIVES                 bar. He so informs Heidi.
                                             school fees, mortgage payments,
The RBV (Reserve Bank of Vanuatu),                                                 A friend of mine passed this onto me
                                             etc., then you (the consumer) will                                              Heidi then demands payment from
led by the Honourable Odo Tevi, is                                                 and I think it’s a worthwhile inclusion
                                             be far less inclined to spend                                                   her alcoholic patrons. But, being
to be congratulated on its                                                         for today’s article as it explains, in
                                             money on more “frivolous things”                                                unemployed alcoholics -- they cannot
transparent        and        timely                                               simple terms, the principle of what
                                             such as holidays, new cars,                                                     pay back their drinking debts.
communications practices. Not only                                                 has happened to the global
                                             household goods (TV’s, i-Pad’s,                                                 Since Heidi cannot fulfill her loan
has the RBV released its September                                                 economy.
                                             washing machines, etc.) and even                                                obligations she is forced into
2011 “Monetary Policy Statement”
                                             clothes;                              Heidi is the proprietor of a bar in       bankruptcy. The bar closes and
on     its    web    site    already
                                            The absence of NEW large              Detroit ...                               Heidi's 11 employees lose their jobs.
( but it also
                                             construction projects as well as
announced the fact to the general                                                  She realizes that virtually all of her    Overnight, DRINKBOND prices drop
                                             new homes. Conversely, my
public at the same time via the local                                              customers        are      unemployed      by 90%. The collapsed bond asset
                                             observations point to an increase
media. Hmmm . . sounds like these                                                  alcoholics and, as such, can no longer    value destroys the bank's liquidity
                                             in demand for home repairs,
guys could teach some lessons about                                                afford to patronize her bar.              and prevents it from issuing new
                                             improvements and renovations
communication to some other not-                                                                                             loans, thus freezing credit and
                                             handymen/tradesmen;                   To solve this problem, she comes up
so-efficient    Government-related
                                            The massive downturn in               with a new marketing plan that            economic activity in the community.
                                             property      prices,    especially   allows her customers to drink now,        The suppliers of Heidi's bar had
If you are at all interested in the          residential, over the past three      but pay later.                            granted her generous payment
state of the local economy then I            years or so (in some cases, by as                                               extensions and had invested their
recommend that you visit the RBV’s           much as 75%);                         Heidi keeps track of the drinks
                                                                                   consumed on a ledger (thereby             firms' pension funds in the BOND
site where you can read and/or              A noticeable increase in the                                                    securities.
download a wealth of information,            number of local business failures.    granting the customers loans).
some of which I am about to use in                                                 Word gets around about Heidi's            They find they are now faced with
                                         It’s pretty much common knowledge                                                   having to write off her bad debt and
this week’s column.                                                                "drink now, pay later" marketing
                                         that visitor numbers via the airlines                                               with losing over 90% of the
Before getting into facts and figures,   are down. Fortunately, this drop in       strategy and, as a result, increasing
                                                                                   numbers of customers flood into           presumed value of the bonds.
allow me to state one very important     numbers       has     been    partially
fact and that is – Vanuatu and its       compensated for by an increase in         Heidi's bar. Soon she has the largest     Her wine supplier also claims
developed economy neighbours,            the number of cruise ships. The chart     sales volume for any bar in Detroit ...   bankruptcy, closing the doors on a
Australia and New Zealand, have          below is only current to March, 2011,     By providing her customers freedom        family business that had endured for
been, are now and will continue to be    however, I expect that a continuation     from immediate payment demands,           three generations, her beer supplier
affected by what has been happening      of this trend will show up in the next    Heidi gets no resistance when, at         is taken over by a competitor, who
in other key economies around the        reporting period:                         regular intervals, she substantially      immediately closes the local plant
world, namely the Eurozone, US, and                                                increases her prices for wine and         and lays off 150 workers.
the BRIC (Brazil, Russia, India and                                                beer, the most consumed beverages.        Fortunately though, the bank, the
China) countries.                                                                                                            brokerage     houses    and    their
                                                                                   Consequently, Heidi's gross sales
Here in Vanuatu, we have already                                                   volume increases massively.               respective executives are saved and
experienced some of the downside                                                                                             bailed out by a multibillion dollar
attached to the GFC which started in                                               A young and dynamic vice-president        no-strings attached cash infusion
September, 2008.                                                                   at the local bank recognizes that         from the government.
                                                                                   these customer debts constitute
Ones noted by yours truly include:                                                 valuable future assets and increases      The funds required for this bailout
                                                                                   Heidi's borrowing limit.                  are obtained by new taxes levied on
                                                                                                                             employed, middle-class, nondrinkers
                                         In the latest report from the RBV,        He sees no reason for any undue           who have never been in Heidi's bar.
                                         along with similar information being      concern because he has the debts of
                                         disseminated within our local             the unemployed alcoholics as              Now do you understand?
                                         business community, whilst there are      collateral!                               Until next week . . .
                                         public building projects valued at
                                                                                   At     the     bank's     corporate       “HAPPY INVESTING!”
                                         around AUD250Million in the
                                                                                   headquarters, expert traders figure a
                                         pipeline, it is highly unlikely that we                                             Phil Manhire can be contacted direct
                                                                                   way to make huge commissions, and
                                         shall see their commencement                                                        at or
                                                                                   transform these customer loans into
                                         before 2013. A similar scenario is                                                  on Mob: (+678)7752654
 Rises in the price of general                                                    DRINKBONDS.
                                         being predicted for developments in
  goods, rises that far outweigh         the private sector.                       These "securities" then are bundled
  Vanuatu’s headline inflation rate                                                and traded on international securities
  (about 2%). Sure, we have been         HOWEVER, unless the leaders of the
  subjected to some fuel price           world’s largest economies can get
  increases but not significant          their act together and make fiscally      Naive    investors   don't     really
                                         and socially responsible decisions        understand that the securities being

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