The Economic Case for an Independent Scotland

[H_B]

A state owned bank isn't an asset?

The Bank of England is not an asset.

You seem to have skipped over this :-

"The Bank of England is a regulated organ of the state under statute. It is not an asset.

The pound is a regulated unit of currency representing a value determined by a basket of assets held by the Bank of England. It is not itself an asset.

The gold, silver, platinum, banknotes, buildings, pencils, pens, pads of paper, computers, paintings, toilet roll and suchlike owned by the Bank of England are assets."

This is absolutely correct.

[Baxter Parp]

The pound is a regulated unit of currency representing a value determined by a basket of assets held by the Bank of England. It is not itself an asset.

If anything of value is an asset then yes it is.

[ayrmad]

Not my own words in case anyone else thinks I've just suddenly changed my posting style to long and detailed.

The safest form of lending is to the German Government. The risk premium on state borrowing is calculated on the extra paid over the going rate for German 10-year government bonds.

At the start of January 2014, the yield (i.e. interest) on UK Treasury debt was 1.03 percentage points over the going rate for German bonds. But just look at what other small industrial nations of Western Europe are paying. In practically case it is less than the UK Treasury pays: Austria (+0.36 points over Germany), Denmark (+0.06), Finland (+0.21), Netherlands (+0.32), and Sweden (+0.58). Why would Scotland, with a GDP per head in the global top 20, pay more than these countries never mind more than the UK with its mega debts?

Some will mention the contingent liabilities left over from the 2008 banking crisis as a potential problem. But little Switzerland had just as big a problem with its banks during the Credit Crunch. Today, the Swiss Government pays less for its public borrowing that even Germany! The Swiss pay 0.61 percentage points below what the safe German Government forks out to the markets.

What about Ireland, which does have a serious budget crisis (and no oil as yet)? Ireland pays a spread of +1.45 percentage points over the German rate. But that compares well with the UK's +1.03, largely because the Irish have an export boom while the UK trade deficit is one of the worst in the industrial world.

What about Belgium, which has been on the verge of spitting into two new states for some time? Belgium government bond yields are +0.68 points above the German – way lower than UK Treasury debt.

Note also that the UK has artificially kept its borrow costs down by having the Bank of England print pounds (electronically) and use the cash to buy Treasury bonds (i.e. lend to the Westminster Government). Take away this 'quantitative easing' and the cost of UK Treasury borrowing would shoot up.

There's an important caveat we have to make. Of course if Scotland ran an unsustainable and irresponsible structural deficit like the UK Treasury than the markets would punish us – and they would be right to do so. However, such profligacy is highly unlikely. In fact, during the entire period from 1980 till 2012, Scotland (with its proportionate share of oil revenues) ran an average annual budget surplus equivalent to 0.2 per cent of GDP. In the UK, on the other hand, this period saw an average annual budget deficit equivalent to 3.2 per cent of GDP. So Scotland has a track record of responsible budgeting – something the markets will take into account.

Note also that Scotland's entire national debt on independence is likely to be around £100 billion. George Osborne and Danny Alexander borrow more than that every year! Scotland's entire debt as a proportion of its GDP is likely to be around 10 percentage points lower than for rUK. Again, these numbers should give confidence to lenders to Scotland. On the other hand, the same cannot be said of rUK, which might explain why the Treasury has been reluctant to contemplate a future without Scotland.

[H_B]

Note also that Scotland's entire national debt on independence is likely to be around £100 billion.

No it isn't.

[ayrmad]

No it isn't.

Just a copy paste job not my own, when do I ever post like that?

What measure do you think will be used to calculate our share of debt?

[H_B]

Just a copy paste job not my own, when do I ever post like that?

What measure do you think will be used to calculate our share of debt?

I think it's likely to be population share, with maybe the odd adjustment.

A population share of UK debt as at 2016 will be significantly more than 100 billion though.

[Baxter Parp]

I think it's likely to be population share, with maybe the odd adjustment.

A population share of UK debt as at 2016 will be significantly more than 100 billion though.

375Bn of the debt is QE held by the BoE, discount that and the debt is reduced considerably.

[ayrmad]

I think it's likely to be population share, with maybe the odd adjustment.

A population share of UK debt as at 2016 will be significantly more than 100 billion though.

I don't know what it will be because Scotland would be entitled to a share of the Treasuries Debt holdings but we will pay population share minus our cut of the Treasuries Debt Holdings.

[H_B]

I don't know what it will be because Scotland would be entitled to a share of the Treasuries Debt holdings but we will pay population share minus our cut of the Treasuries Debt Holdings.

Which will be significantly more than 100 billion.

[Baxter Parp]

Which will be significantly more than 100 billion.

If the UK's debt increases at its current rate, I make it about 104Bn.

[ayrmad]

Which will be significantly more than 100 billion.

A debt of £1.588 trillion is £100 billion so anything less than that will be less than £100 billion anything more than that will be greater than £100 billion.

A debt of £2 trillion will result in our share being £126 billion, that's significantly higher, exactly how much damage do you expect the Tories to do before 2016?

As an approximation use 3/4 of our population to calculate our share as the Treasury owns ~1/4 of it.

[H_B]

A debt of £1.588 trillion is £100 billion

Really? How are you calculating that?

[ayrmad]

Really? How are you calculating that?

Population 8.4%, UK owns approximately 25% of the debt, we in turn are entitled to 8.4% of that 25%.

Obviously the population % and UK debt ownership % might change so these figures are in no way set in stone.

[H_B]

Population 8.4%, UK owns approximately 25% of the debt,

What is the amount the UK owns of this debt?

[ayrmad]

What is the amount the UK owns of this debt?

BP in his post above says it's £375 billion.

[H_B]

BP in his post above says it's £375 billion.

Right, and why are you removing this from the 1.588 trillion?

[ayrmad]

Right, and why are you removing this from the 1.588 trillion?

Because that's the amount of UK debt that the UK Treasury owns, surely we're entitled to our 8.4% share of that.

In simple terms they borrowed from themselves.

[the jambo-rocker]

Oh, so suddenly you don't want to talk about the maritime border? Having been utterly humiliated on the subject?

I am voting No because I believe I will be financially worse off post secession. As a Higher Rate taxpayer, I don't trust either the SNP or Scottish Labour not to tax and spend and have a bloated public sector. I also don't like the political landscape an Independent Scotland would have - not enough balance between left and right wing parties.

I'm a bit late to arriving at this party but with regards to this point. Do you think that the political landscape up here is worse than it is in the UK as a whole? Also, do you prefer having the FPTP to the PR?

Granted that up here it is a brush up between SNP and Labour, both left to center, compared to down south where it is Labour and Conservative, center-right, but surely you must admit that although you might not like the political landscape up here, you can surely agree to an extent that the collective Scottish opinion is diverging and at this rate, will probably continue to diverge away from the rest of the UK?

[HardyBamboo]

What angle at the end had you not thought of?

This bit;

"As we noted above, the real reason the cost of UK public borrowing is not higher is because the Bank of England has printed money and – effectively – used the cash to buy Treasury bonds. (It 'launders' the money by buying bonds at an above the odds price on the open market.) To date the Bank of England has spent £375 billion on this exercise. However, as a result of funding the treasury by (essentially) resorting to the printing press, the Bank of England now owns around a third of the UK national debt. And that, Mr Darling, is an asset that comes into the negotiations over Scottish independence.

Eight per cent of the Bank of England's Treasury bond holding - acquired through quantitative easing - should by rights go to Scotland. But that transfers ownership of a chunk of rUK debt to a foreign country. It means that instead of the UK state owing itself money (because it 'owns' the Bank of England) it would suddenly have a new foreign creditor.

To avoid this financial problem, surely it would be preferable to have a common sterling zone and have formal Scottish representation on the Bank of England's Monetary Policy Committee (which sets interest rates). In return, an independent Scotland would magnanimously forgo removing its share of the Bank of England's assets from London."

[H_B]

I'm a bit late to arriving at this party but with regards to this point. Do you think that the political landscape up here is worse than it is in the UK as a whole? Also, do you prefer having the FPTP to the PR?

1) It's not about being "worse" as a qualitative thing. It's about the lack of balance. In the UK, both Labour and the Conservatives have to appeal to the middle ground (which I'd say I am in) to win. Labour won under Blair because they stopped scaring people in the way Neil Kinnock did.

Neither can afford to be too left or right wing as they will alienate large swathes of the population. I like the balance.

In Scotland, you have the SNP and Labour. There is no right wing check and balance.

2) No, I don't like FPTP. I quite like coalitions.