The Dirty Independence Question

[russycarps]

RBS, Lloyds Group, and Standard Life have now all publicly declared that they're heading south if there's a yes vote.

Apparently, when they suggested they might do this it was bluster.

Anyone with half an understanding of what "lender of last resort" means in practice would have known for certain that this would happen.

So is Alex really really thick about economics despite having a degree in economics (tho only half of one, and only a desmond), or has Alex been deliberately misleading the Scottish people?

You (Scotland) decide. It's not like your futures depend on it or anything.

It's not all bad though, carney said scotland would need to build up a banking reserve of around £100bn to secure it's financial system without the UK's support. My understanding is they will inherit no more than £15bn of the UK's reserves.

The required fund would be much smaller if these banks did redomicile.

There are devastating implications for unemployment and income tax take though, of course (which far outweigh the bonus of requiring a smaller reserve).

[eFestivals]

It's not all bad though, carney said scotland would need to build up a banking reserve of around £100bn to secure it's financial system without the UK's support. My understanding is they will inherit no more than £15bn of the UK's reserves.

The required fund would be much smaller if these banks did redomicile.

There are devastating implications for unemployment and income tax take though, of course (which far outweigh the bonus of requiring a smaller reserve).

the size of the reserve an iScotland would need is eye-watering. I knew it would be £10Bn+, but I hadn't realised quite how large even when they've lost the banks.

Where will iScotland find the equivalent of over half a year's total Scottish output? Under the carpet?

The reality is that mass privatisation would have to happen - the sell-off of a huge number of public assets to foreigners. Housing, land, facilities. And quite possibly huge chunks of the Scottish NHS.

PS: the sell-off of state assets - privatisation - can be seen in most of the new independent states of the last 25 years.

Edited September 11, 2014 by eFestivals

[russycarps]

the size of the reserve an iScotland would need is eye-watering. I knew it would be £10Bn+, but I hadn't realised quite how large even when they've lost the banks.

Where will iScotland find the equivalent of over half a year's total Scottish output? Under the carpet?

The reality is that mass privatisation would have to happen - the sell-off of a huge number of public assets to foreigners. Housing, land, facilities. And quite possibly huge chunks of the Scottish NHS.

PS: the sell-off of state assets - privatisation - can be seen in most of the new independent states of the last 25 years.

They have 18months to find it. It's an incredible sum. They will have to borrow loads off the international markets. I've got no idea what sorts of rates of interest they will get. I dont know what Moody's/Fitch rating an iScotland will get. But even if they blag a good credit rating and a low rate of interest, the interest charges will still be eye watering.

I love the romantic notion of scottish independence and I love the thought of seeing the establishment humiliated, but the harsh economic realities are what really matters.

There is no getting away from the fact a banking fund will be required, as scotland has a mature financial sector.

[russycarps]

I also see Saudia Arabia closed off the spigots and reduced their oil production by a few hundred thousand barrels to push the price of oil up again. Of course, they still retain the power to open up the spigots and cause the price of oil to plummet.

A scottish economy massively reliant on oil prices means a scottish economy controlled massively by Riyadh.

Edited September 11, 2014 by russycarps

[eFestivals]

Won't the oil be the "reserve" though ?

Nope. It needs hard cash, or something as convertible as cash. Oil in the ground isn't that.

[eFestivals]

They have 18months to find it. It's an incredible sum. They will have to borrow loads off the international markets.

Nope - you can't borrow yourself a reserve.

The whole point of a reserve is that it's reserved as a reserve - it's not anything that's contra'd, as a debt would be against the borrowed cash.

This is why a sell-off is the only realistic option to create that reserve.

Funnily enough, post indy I expect the 'left leaning' Scottish people to meekly go along with that sell-off, because it'll be the least scary option.

I've got no idea what sorts of rates of interest they will get. I dont know what Moody's/Fitch rating an iScotland will get.

The suggestion from the agencies so far has been that it's likely to get something like an AA.

Decent enough in world terms, but hugely more expensive than what the UK pays.

[russycarps]

Nope - you can't borrow yourself a reserve.

The whole point of a reserve is that it's reserved as a reserve - it's not anything that's contra'd, as a debt would be against the borrowed cash.

This is why a sell-off is the only realistic option to create that reserve.

Funnily enough, post indy I expect the 'left leaning' Scottish people to meekly go along with that sell-off, because it'll be the least scary option.

Very worrying stuff.

I'm sure the UK will come to scotlands aid somewhat - just like they did for Ireland at the height of their crisis.

For a nice fee of course.....

[eFestivals]

I also see Saudia Arabia closed off the spigots and reduced their oil production by a few hundred thousand barrels to push the price of oil up again. Of course, they still retain the power to open up the spigots and cause the price of oil to plummet.

A scottish economy massively reliant on oil prices means a scottish economy controlled massively by Riyadh.

Yep.

All of Alex's calculations are based on an oil price of $113 a barrel or greater

So even if Alex was right about the amount of oil*, his numbers are still fucked because the oil price is too low.

*he's not, at least in regard to the revenue it'll generate for govt; if 24Bn barrels is really extractable, the last 12Bn of that is still only economic if govt extraction taxes are significantly cut from the current levels.

It would still be worth Scotland extracting all the oil it can because that'll keep-up the related onshore employment, but the extraction revenues will continue to fall in all scenarios except new finds that are greater in size than the closing fields (hugely unlikely, basically).

[eFestivals]

Very worrying stuff.

I'm sure the UK will come to scotlands aid somewhat - just like they did for Ireland at the height of their crisis.

For a nice fee of course.....

As I say, you can't borrow yourself a reserve. The money to Ireland was a loan, at an interest rate too (so a money maker for the UK govt).

There's a post of mine in this thread from a long time ago, where I say that I do expect rUK to be helpful in iScotland getting established - so it might perhaps devise some sort of short-term and limited currency &/or bank support that Alex lovers everywhere will probably hail as a CU, but it won't be that. The bottomless pit scenario is too great a risk for rUK to take on when £20Bn can be wiped out in a flash by the spivs.

[russycarps]

Yep.

All of Alex's calculations are based on an oil price of $113 a barrel or greater

So even if Alex was right about the amount of oil*, his numbers are still fucked because the oil price is too low.

*he's not, at least in regard to the revenue it'll generate for govt; if 24Bn barrels is really extractable, the last 12Bn of that is still only economic if govt extraction taxes are significantly cut from the current levels.

It would still be worth Scotland extracting all the oil it can because that'll keep-up the related onshore employment, but the extraction revenues will continue to fall in all scenarios except new finds that are greater in size than the closing fields (hugely unlikely, basically).

Yep.

The problem scotland has is that all the "easy" oil is gone. The Yes voters bleat about how new oil fields are being discovered but the cost of extraction is ridiculously prohibitive.

Why would the likes of BP etc fund expensive deep sea rigs in the north sea when the likes of canada's tar sands, brazils santos basin and the US revival is far far cheaper?

As someone said earlier in this thread (think it was you). To benefit from the oil scotland needed independence in the 70s. Now it's economic suicide.

Norway recognises this. Their future prosperity will not be dependent on the oil, but how their oil Fund is invested. Scotland has no oil fund to invest.

Do people voting Yes understand this?

[eFestivals]

Norway recognises this. Their future prosperity will not be dependent on the oil, but how their oil Fund is invested.

Norway is starting to worry that it's lumped too much of its future on the oil boom.

Because they've become a petro-economy (its impossible to avoid as a small country with its own currency and lots of oil extraction) it's decimated most of their other industries.

As a result unemployment is projected to rise hugely in the coming decades, and they don't believe the return on investments from the oil fund will be enough to cover the revenue gap.

[ThomThomDrum]

Why does everyone go on about Scotlands oil as if its the only potential future source of income for them? What is stopping the Scots from becoming a hub for foreign direct investment by becoming a corporate tax friendly country? Surely this is something the Scots will be potentially looking at if/when they get power?

[kaosmark2]

Why does everyone go on about Scotlands oil as if its the only potential future source of income for them? What is stopping the Scots from becoming a hub for foreign direct investment by becoming a corporate tax friendly country? Surely this is something the Scots will be potentially looking at if/when they get power?

Because if when they go as a low-corp tax rich-man's paradise they'll be shitting on their left-wing ideology attempt to appear moral and be attempting to steal economy from the countries they're not at all dependent on.

[russycarps]

Why does everyone go on about Scotlands oil as if its the only potential future source of income for them? What is stopping the Scots from becoming a hub for foreign direct investment by becoming a corporate tax friendly country? Surely this is something the Scots will be potentially looking at if/when they get power?

because oil is the only thing that separates them from every other country that has tried to get wealthy by undercutting everyone by slashing corporation tax. It's hardly a revolutionary tactic.

[eFestivals]

Why does everyone go on about Scotlands oil as if its the only potential future source of income for them?

No one does. But it's a hugely important part of sustaining current spending levels in an iScotland.

Without the oil, Scotland raises 8.4 of the UK tax revenue, but spends 9.3% of UK spending. The oil money is not enough to bridge that difference.

And yet Alex has it bridging that difference, AND paying down iScotland's 10% deficit, AND it paying for increased public spending, AND creating an oil fund.

Those in the real world know this stuff about the oil is VERY important for iScotland's immediate future prospects.

What is stopping the Scots from becoming a hub for foreign direct investment by becoming a corporate tax friendly country? Surely this is something the Scots will be potentially looking at if/when they get power?

Ahh, a race to the bottom with Ireland and others - a neoliberal dream where the only real gainers are the already rich while the country ge4ts fucked.

Amusingly, yes-ers everywhere say they reject neoliberalism while also endorsing Salmond's neoliberalism.

But anyway ... meaningful growth requires a country to out-perform the country they prefer to compare themselves with, and that requires being cleverer than all the other people in other countries who also like to think themselves as cleverer than everyone else.

So, perhaps you might point out to us cynics what is the source of this Scottish exceptionalism, as Alex hasn't been able to do-so so far despite promising us all that it's there?

Better economic performance by iScotland isn't impossible, but it's also not a given. If it were to have better performance than the average then it's unlikely that that better performance will reach the heights claimed by Alex.

Exceptionalism requires exceptional people. Whatever Alex is, he's not that on the economic front and neither is any other Scotsman anyone can point at.

Edited September 11, 2014 by eFestivals

[ThomThomDrum]

I only mentioned the "low tax" as an example of a strategy for Scotland being able to generate some jobs and income other than relying so heavily on its oil income. The main point I was really trying to make was, surely those who desire an iScotland are not only thinking of oil as Scotlands savior, because it will obviously need more than that to be an economic success. Yet so much of the chatter about the new potential iScotland is based on oil. I just find that a little short sighted, or in some cases, narrow minded. What independence gives Scotland is an ability to use strategies, such as low tax, that it can not necessarily use while still part of the UK.

Whats stopping an iScotland from becoming an R&D haven? A place for competitive banking? etc etc. Im obviously not the right guy to be coming up with Scotland's economic strategies, but surely it will be more than "oil" and one would hope that those that are hoping to have power in an iScotland are already thinking of such

[eFestivals]

I've just eaten my lunch while watching Salmond blathering on. I saw him...

1. claim the huge loss of value in Scottish companies this week has no relationship to the indyref.

2. show he doesn't understand corp tax - or deliberately lie.

3. show he doesn't understand who becomes a Scottish citizen by his own constitution - or deliberately lie

He's amazing. All of this shit dribbles out of his month and not a single yes-voting scot is able to see it.

Edited September 11, 2014 by eFestivals

[eFestivals]

I only mentioned the "low tax" as an example of a strategy for Scotland being able to generate some jobs and income other than relying so heavily on its oil income. The main point I was really trying to make was, surely those who desire an iScotland are not only thinking of oil as Scotlands savior, because it will obviously need more than that to be an economic success. Yet so much of the chatter about the new potential iScotland is based on oil. I just find that a little short sighted, or in some cases, narrow minded. What independence gives Scotland is an ability to use strategies, such as low tax, that it can not necessarily use while still part of the UK.

Whats stopping an iScotland from becoming an R&D haven? A place for competitive banking? etc etc. Im obviously not the right guy to be coming up with Scotland's economic strategies, but surely it will be more than "oil" and one would hope that those that are hoping to have power in an iScotland are already thinking of such

There's a million and one different economic strategies that Scotland could try - just as every other country does. But apparently iScotland will be the only country that will have success with their strategy, because Scotland will become more-suceessful than everywhere else.

But that's the future. Right now, the oil money is critical else Tory austerity is a spending spree in Scottish terms.

It's only possible to try different strategies in the good times, not when you're already deeply in the shit. Just as the UK has little leeway with its financial choices, the same is true for iScotland but more-so.

You ask: Whats stopping an iScotland from becoming an R&D haven? A place for competitive banking? etc etc.

The answer is: nothing more than stops any other country or has them do it.

The point is that there's nothing special that Scotland can offer that other countries can't also offer, and so therefore there is no clear path to any greater economic success. There is nowhere that Scottish exceptionalism is able to hide within world economics.

Ireland thought they'd nailed it, and then they found out it was all a mirage, an illusion. There is only the same illusion being offered by Salmond, because there is nothing exceptional.

[russycarps]

Whats stopping an iScotland from becoming A place for competitive banking?

To take this point, Iceland tried that. And got bent over and fucked up the arse.

It's incredibly difficult for small countries to become economically strong without the support of being lucky enough to have a commodity such as oil. Or having genius politicians. Sadly I dont think they exist anywhere in british politics.

Edited September 11, 2014 by russycarps

[ThomThomDrum]

Ireland thought they'd nailed it, and then they found out it was all a mirage, an illusion. There is only the same illusion being offered by Salmond, because there is nothing exceptional.

I thought Ireland failed because the stupid politicians guaranteed the banks when they were all fucked, as those banks had all loaned out way too much money to companies (mainly property developers) that were never going/able to pay it back but the banks felt that mentioning such prior to being guaranteed would be silly. Was that not the single cause of the Irish bailout? Not its economic strategies regarding foreign direct investment, agri exports, R&D, ICT etc? Edit -(Which incidentally are all still doing well for the country)

Edited September 11, 2014 by ThomThomDrum

[LJS]

I only mentioned the "low tax" as an example of a strategy for Scotland being able to generate some jobs and income other than relying so heavily on its oil income. The main point I was really trying to make was, surely those who desire an iScotland are not only thinking of oil as Scotlands savior, because it will obviously need more than that to be an economic success. Yet so much of the chatter about the new potential iScotland is based on oil. I just find that a little short sighted, or in some cases, narrow minded. What independence gives Scotland is an ability to use strategies, such as low tax, that it can not necessarily use while still part of the UK.

Whats stopping an iScotland from becoming an R&D haven? A place for competitive banking? etc etc. Im obviously not the right guy to be coming up with Scotland's economic strategies, but surely it will be more than "oil" and one would hope that those that are hoping to have power in an iScotland are already thinking of such

The main reason there is so much chatter about oil is that the no side are constantly attacking the Snp's oil estimates. Now, the one thing we know about oil is we don't really know for certain how much there is or what it's worth. The problem Westminster has is they have previous on lying about the amount of oil, so even if they are being scrupulously honest this time, they have a credibility issue up here. As they do in numert other areas.

[LJS]

To take this point, Iceland tried that. And got bent over and fucked up the arse.

It's incredibly difficult for small countries to become economically strong without the support of being lucky enough to have a commodity such as oil. Or having genius politicians. Sadly I dont think they exist anywhere in british politics.

New Zealand does ok.

We have sheep

[LJS]

Major boost for London brass plaque fixing industry.

[Stash]

I thought Ireland failed because the stupid politicians guaranteed the banks when they were all fucked, as those banks had all loaned out way too much money to companies (mainly property developers) that were never going/able to pay it back but the banks felt that mentioning such prior to being guaranteed would be silly. Was that not the single cause of the Irish bailout? Not its economic strategies regarding foreign direct investment, agri exports, R&D, ICT etc? Edit -(Which incidentally are all still doing well for the country)

The main banks had over €110bn in loans from foreign lenders in 2008, much of this was borrowed on a three-month rollover basis to fund building projects that would not be sold for several years. As the property bubble started to pop, these properties could not be sold due to oversupply and the banks were left with a lot of assets and not much cash.

Unfortunately they had no walls between the consumer & commercial sides of the banks, so if they fell then the economy would have imploded in a much less controlled and drastic fashion than it did under the bank guarantee. It certainly didn't help that the banks underestimated the true scale of their liquidity issues & that the rest of the world was starting to feel the same pinch and further borrowing became impossible.

[eFestivals]

I thought Ireland failed because the stupid politicians guaranteed the banks when they were all fucked, as those banks had all loaned out way too much money to companies (mainly property developers) that were never going/able to pay it back but the banks felt that mentioning such prior to being guaranteed would be silly. Was that not the single cause of the Irish bailout? Not its economic strategies regarding foreign direct investment, agri exports, R&D, ICT etc? Edit -(Which incidentally are all still doing well for the country)

That was the cause of Ireland's crash, yup - but you got to there via a phantom boom that was just an illusion in the end. It was your own version, if you like, of Brown's "no more boom and bust". Britain had that illusion of boom too. Just about the whole world did.

At some point everything will return to normal (as normal as it ever gets) and that'll be the time to best assess where each country really is - before more illusions start to creep back in and we'll go round again.

But anyway, Ireland's a pretty good example of the most likely scenarios around Scotland. After leaving the union its own choice of shackles held it back for 60-ish years, and it wasn't until it again integrated itself with a union that it started to blossom (and mostly via the huge piles of cash that new union gave it; they'll be none of that for iScotland).

Scotland would be swapping a union that is a hugely important part of its daily life (70% of Scotland's exports) for a union that is almost insignificant in comparison (15% of Scotland's exports). It's hard to see how that can't diminish Scotland, because the amount of trade with rUK will undoubtedly fall.