Debt Bomb Britain

westmin
By John S Warren

Be under no illusion, even the Conservative and Labour parties do not believe they are offering a choice to the electorate in the 2015 General Election. What they are offering is a political ‘price fix’ orchestrated by the Westminster Cartel. In the Scottish Referendum the British State inadvertently showed its real face: and in the 2015 election it will be ’Better Together’ yet again; a multi-party system offering the same Government under different names; fronted by a theatrical pantomime diversion of a Parliament, which has the sole purpose of disguising from the electorate the real nature of the political Cartel that has sold them short.

At the core of all this theatrical, over-dramatised, storm-in-a-teacup, puffed-up pointlessness, intended only to produce the public illusion of a political “contest“ between Labour and Conservative in 2015, is the critical matter of the UK “Deficit”. The Deficit is the centre of the election campaign; to all intents and purposes, it is the campaign.

Conservative and Labour are desperate (despairing?) in their anxiety to persuade the electorate that there are real, wide differences between their approaches to tackling the “Deficit”. In fact the actual differences between Labour and Conservative in their approach to the “Deficit”, relative to the real scale of the problem, are insignificant. We are usefully reminded about the real nature of the political sleight-of-hand to which Cameron, Clegg, Osborne and Alexander have resorted in presenting their efforts at Deficit reduction; not by appeal to allegedly independent economists, think-tanks, media commentators, or any of the rest of the conventional paraphernalia that calculatingly adds so little to public understanding; but simply by reading John Redwood’s Blog (1st October, 2014):

“Under the Coalition the level of state bank indebtedness has been curbed substantially. This has been almost entirely offset by continuing increases in state borrowings to pay for public spending. On the narrower definition of state borrowing excluding banks the total has risen from £956bn in March 2010 to £1432 bn in August 2014, an increase of £476 bn. This puts the idea of public sector austerity into perspective. The Coalition has continued borrowing at a similar rate to Labour’s increases, though the Coalition is gradually bringing down the rate of increase in the borrowing”.

In the present and recent past there is no difference between Labour and Conservative over the non-management of the “Deficit” (as to the future, party political ‘promises’ cannot be cashed for value). What Labour and Conservative are actually arguing over is the rate of increase in borrowing under their trivially different regimes; which under scrutiny quickly collapses into a form of metaphysical esotericism: microscopic nit-picking over small oscillations around a deficit trend line neither side can control, and a problem that neither party has shown any capacity to solve.

Both parties will continue to operate a system of brutal social welfare spending austerity, flavoured by vacuous rhetorical gestures towards whatever last vestiges of the electorate remain sufficiently credulous or gullible to fall for the seduction of snake-oil salesmen; you can be sure these will be mere gestures, moving the “Deficit” trend line a few microns one way or the other to please the constiuency of mindless right-or-left ideologues, but austerity will be combined with a fiscal policy that, we should carefully note; is intended to fail to achieve anything at all (they will argue ideologically over nominal tax rates that are effective as tax rates almost exclusively in the case of the almost defenceless ‘paye’ contributor, but in corporate terms are largely decorative, and in wider international economic terms, effectively meaningless).

When Redwood offers the observation that, “the level of state bank indebtedness has been curbed substantially”, what he fails to mention is that large private sector banking losses have been transferred, permanently, to the public sector by the neo-conservative apologists for unregulated free-enterprise, and added to what he terms “public borrowings”; the National Debt (the public sector). It seems that in Britain the word “free” in “free enterprise” is there to ensure that in banking at least the profits and assets remain “private”, while the inconvenient losses and liabilities are despatched smoothly and seamlessly to the “public”; typically represented by the defenceless ‘paye’ taxpayer.

Turning now to the reality behind the mere knockabout politics of the Conservative or Labour ‘spin’ on the “Deficit”, it is worth remembering that the “Deficit” is only one part of the deep, unsustainable problem now facing the British economy; an unsustainable problem that will unravel alarmingly as interest rates rise (as they will, like nemesis), and perhaps with disconcerting speed as matters unfold; but the trite politics of the “Deficit” is all you are going to be offered in 2015. Originally, if you wearily care to recall, the “Deficit” was to be eradicated within one Parliament (by 2015), but while Parliaments and Governments come and go, the “Deficit” alone remains intact, and the date of its elimination drifts ever forward, into a perpetually receding medium-term future (think of it like a receding hair-line; and the economic fashionista George Osborne as offering a comb-over as the solution).

Behind the “Deficit”, and lying in wait for us all, is the yet bigger problem of the UK National Debt; which has not yet peaked, nor the date that peak will be reached, reliably forecast; indeed the date when we finally discover just how big the biggest problem Britain will face – the “Debt” itself – in turn, continually recedes from view. The “Debt” thus carries another, problematic moving problem that Conservative and Labour are disinclined to discuss; but for Britain today and for the British people, a problem that can only turn for the worse. The underlying problem is the rate of interest to be paid on Britain’s “Debt” Mountain; interest rates can scarcely move lower — even theoretically; if they did, we would almost certainly have simply moved into another kind of crisis, serious deflation; the proverbial fire replacing the current, warming frying pan.

So what is the cost of servicing the UK “Debt“ Mountain? Labour and Conservative politicians do not like to discuss longer term interest rate prospects, it is too difficult; however bad the problem of controlling the “Deficit” becomes, it is much easier to produce phoney arguments over political management of the “Deficit”, than discussing how on earth we are going to fund Britain’s “Debt”, long term and in a much more realistic higher-interest rate environment than the current ‘management’ of the inherently unmanageable allows. Remember, this is the all-seeing, all-wise “markets”; this is how (allegedly, they work – well, at least when they are not actually being rigged), and eventually they follow their own logic. There are no good outcomes.

Even in 2014 interest paid on the UK Debt Mountain (that in turn has not yet peaked), had reached around £1Billion per week; that is £52 Billion per year. Unfortunately even this level of funding relies on interest rates remaining at historically exceptionally, unsustainably, low levels; interest rates, it must be stressed, over which Britain has very little control long term, whatever British governments or the Bank of England opine; low interest rates that, even at £1Billion per week, have quite fortuitously served the UK rather too well, because of the peculiar circumstances following on the international financial turbulence in the wake of the Crash. This position is not ‘normal’, and it will not last. Indeed, “Low” scarcely does justice to current base-interest rates that are near zero and historically atypical.

Assuming we return to more conventional levels of interest rates in the world, then UK interest payments on the “Debt” will inevitably rise, quite probably exponentially. We may then be looking at UK interest payments on the final mountain of “Debt”, whatever that total; that is far higher than £52Billion per annum. Even at relatively modest, stable interest rates, and allowing for timing adjustments for holding the total Debt for a full year; we may reasonably extrapolate interest payments of double, treble or even quadruple current levels of payment, as represented by the mid-2014 £52Billion per annum. What we are looking at may be interest costs for Britain, long-term of, say (?) £100Billion or higher; perhaps even £200Billion per annum in adverse circumstances?

What British Government Budgets will be cut then? Rather, the question will be, what Budgets will survive? In these circumstances how are we ever going to pay, not just the interest; but repay the “Debt” itself? Labour and Conservative have not even contemplated how the problem of the “Debt” capital repayment schedule is to be addressed, or worse still (but more likely), refinanced.

What kind of future does this outcome promise for Britain, or for that matter, its Parliament? Perhaps this is why such disparate sources as the ‘Guardian’ or ‘Spectator’ have suddenly taken to circulating the latest Westminster Cartel General Election 2015 wheeze; a National Government. The Labour and Conservative answer to the problem is simply to make the long-standing, implicit, lack of political choice of government in Britain, finally, explicit. There is only one government in Britain, whoever wins the election.

Who would notice the difference? What difference?



Categories: Economics

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118 replies

  1. what is the solution ? What would a clued up party offer as a choice?

    • The short answer – Money issued debt free and claiming more of the profit on money creation could be solutions!

      The longer answer – The article highlights the rise of public debt as a symptom of spending money one does not have, a lack of public funds. However what many political parties have not realised is that 1) Most of the money supply is created by private banks as a debt out of nothing.

      The Bank of England have said that ‘Commercial banks are the creators of deposit
      money…rather than banks lending out deposits that are placed with them – the act
      of lending creates deposits-the reverse of the sequence typically described in
      textbooks.’ – 97% of the amount currently in circulation (p15)

      And that: ‘Just as taking out a new loan creates money, the repayment of bank loans
      destroys money.’(p16) (All banks keep from this flow is the interest)

      ‘Money creation in the modern economy’ Quarterly Bulletin 2014 Q1 http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1.pdf

      So the status quo means if you want more money in the economy than you also have
      more debt. Money issued debt free could be a solution. The English and Welsh Greens are the only party to have this idea in their policies as far as I am aware.

      ‘EC663 The existing banking system has failed and is no longer fit for purpose.
      The Green Party believes that the power to create money must be removed from
      private banks. The supply of our national currency must be fully restored to
      democratic and public control so that it can be issued free of debt and directed
      to environmentally and socially beneficial areas such as renewable energy,
      social housing, or support for community businesses.’
      http://policy.greenparty.org.uk/ec.html

      2) This money is currently finite – it is created and destroyed. We could at least try
      to recycle it in the public interest! The Treasury already receives the profits on creating notes and coins…’How are the costs of printing banknotes met?
      NCS members purchase new banknotes from the Bank at face value. The Bank invests
      this money in interest bearing assets, such as UK government bonds. The Bank
      deducts the costs of printing banknotes from the income on these assets, and the
      balance is returned to HM Treasury. This income is known as seigniorage. Total
      seigniorage in 2012-13 was £592 million, of which £75 million was spent on
      printing and issuing banknotes, with the remaining £517 million paid to HM
      Treasury.’ http://www.bankofengland.co.uk/banknotes/Pages/about/faqs.aspx

  2. I have been watching this for some time, it is all smoke and mirrors, and just one of the biggest reasons that Westminster was so panic stricken by the thought of Indy. There were of course many other reasons, but the overall TOTAL debt is inescapable as it is untenable.Scotland would have been the straw that broke the camel’s back.

    The UK is going to crash, perhaps the biggest crash ever, it will badly effect everyone across the UK, Property prices, investments, Banks and big business, as well as everything and everyone below that level.
    Indy was our chance to escape, which in my view is that we were cheated out of it by the lies and deception
    of the British Elite State. Woe betide us all, now that it is too late. ( expect the meltdown between 2015 and 2017.) Timing depends on how long they can hide the truth, before it blows up on them, and us.

  3. The only illusion here is the idea that UK government deficits or debt are any sort of problem in and of themselves.

    As a state with currency sovereignty – the UK government issues its own non-convertible currency and therefore does not need to acquire it from elsewhere before spending – the UK faces only real constraints, not financial ones. It can purchase whatever is available for sale in its currency. If it tries to spend more than that inflation will accelerate.

    That’s the constraint; the capacity of the economy, globally, to produce real goods and services that are for sale in sterling. Is the UK bumping up against that constraint? A look at unemployment and inflation numbers will give you the answer.

    When the financial sector came close to destroying itself after years or fraud, who was it that bailed them out? Was it tax payers? No; tax takings didn’t rise, they fell. Was it the mythical ‘markets’, controllers of all money – so we’re told? No; the financial institutions that make up ‘the markets’ were the very people being bailed out. They didn’t bail themselves out.

    So where did all the money the government ‘borrowed’ come from? It came from the currency issuer, which in the case of the UK – and the US and Japan and China and Australia etc. – IS the government. The same government we’re told cannot afford decent levels of public spending because of ‘the markets’.

    Interest on sovereign debt is irrelevant if the country in question is genuinely sovereign, if it has its own floating, non-convertible currency and the debt is issued in that same currency. The UK could simply stop issuing debt at all, with just some changes in the law. Not changes in mathematics, or accounting, or economics. Just in the rules we set for ourselves.

    “We’ve run out of money”. “Oooh, but look at the debt”. It’s all neoliberal nonsense – which the neoliberals ignore when it’s their friends in the banks that need the spending – and as long as progressives and/or nationalists continue to buy into it there will be no progress.

    • Thank you for the comment. Around 30% of UK Gilts are Overseas holdings, and that has held fairly steady since the Credit Crunch; this implies we have significantly raised our indebtedness to Overseas holders. It is true that the Bank of England rapidly raised its stake to circa 25%+ from around 2009 (from zero) but the long-term consequences of the Bank of England activities post-Crunch remain to be seen. On the other hand other holdings of Gilts by UK investors are notably declining; not perhaps an encouraging sign.

      You observe that sovereign debt is irrelevant “if the country in question is genuinely sovereign”. First, presumably you believe that the UK is genuinely sovereign. Second, I think I would require a definition of your term “genuinely sovereign”; its precise meaning. You may well have an interesting take on this, but prima facie I would not have thought the UK offered itself as a paradigm.

      • John, thanks for your response.

        Foreign holdings of UK government debt may have risen, but it is what is held that matters, not who is holding it. If UK debt is denominated in sterling – which the vast majority of it is – then the UK government can never lose the ability to make debt payments. The recipient of those payments makes zero difference.

        UK debt is in sterling.

        Interest payments on that debt are in sterling.

        Who issues sterling?

        It is impossible for a government, any government, to “run out of money” which it itself issues, provided the currency is non-convertible. Sterling is non-convertible; it comes with no promise to convert to gold or silver or some other currency.

        So yes, the UK is genuinely sovereign, at least when it comes to currency and government debt. I mentioned the conditions which determine that, but I can expand on them.

        1) Country in question must issue its own currency. This means that at the most basic level the government of said country does not need to acquire currency from elsewhere before it can spend.

        2) Country in question must let that currency float in currency markets. In other words: no pegs. This means that the government does not need to acquire foreign currency in order to defend the peg. For recent examples of how this fails for countries like the UK, with sustained external deficits, look at Argentina, or closer to home with the UK’s attempt to join the ERM. This must be extended to forbid promising conversion to precious metals or other commodities. No gold standards.

        3) Country in question must issue debt, if any, in the currency it also issues. This means the government has no need to acquire foreign currency in order to honour its debt obligations.

        The, hopefully obvious, theme here is that anything which leaves the government dependant on acquiring either foreign currency or commodities before it can either spend or sustainably issue debt is verboten.

        None of this means that governments can spend without limit, it merely means it must respect real limits, such as the presence of workers looking for jobs, or goods and services offered for sale. Deciding where that spending should go is where politics comes in.

        Do we want more hospitals or more aircraft carriers? We have the money for both – our government is the issuer – but do we have the aluminium, the capacity to produce electronic equipment, the personnel, the graduates? Those are the real constraints.

      • I do not think your answer addresses the point regarding “genuine sovereignty”. We are seriously deficient in what you term the “capacities”, or “real constraints”. We are a trading nation with a trade imbalance, a chronic balance of payments problem and a seriously unbalanced economy that is over dependent on the finance sector. I think your argument on ‘currency sovereignty’ is an elegant abstraction; and you posit the UK as what I might term a kind of economic ‘solipsist’; but we are the last country to fulfil the necessary criteria. The real economic constraints impinge on us and therefore this seriously impinges on the financial/debt framework and the policy freedom of the Bank of England or the UK government.

      • I’m talking about genuine sovereignty when it comes to currency and related matters, such as government debt.

        Is the UK ‘fully sovereign’ in everything? Our government’s willingness to follow the US into imperialist adventures says no, but I’m not talking about that.

        In general I agree with your assessment of the British economy, its lack of manufacturing capacity and its massively oversized financial sector. Most of what the financial sector does should be outlawed.

        Addressing those lacks though would be much easier if we understood what our real capacities and limits are. Government debt, in and of itself, is a fictional limit.

        We don’t have a balance of payments ‘problem’, we have a balance of payments deficit. Foreigners are willing to send us cars and phones and computers in return for sterling, which we create out of thin air. Where is the problem? It might be a problem in the future, if they decided to stop sending us stuff. But if that became the case, or if you genuinely think it’s already a problem, how does pretending we’ve run out of money help us fix it?

        We have plenty of real problems, such as entrenched unemployment, falling real wages and rampant inequality. How does pretending we’ve run out of money help us fix any of it?

      • I shall return to what you said in your first intervention: “The … … theme here is that anything which leaves the government dependent on acquiring either foreign currency or commodities before it can either spend or sustainably issue debt is verboten.” A fair point, but I do not think it describes the reality of the British economy, and the dependence on imports illustrates the point that British ‘sovereignty’, even as you define it, is an illusion.

        Foreign holders of sterling or “foreigners …. … willing to send us cars and phones and computers in return for sterling” are not satisfied because they are paid in sterling, but accept sterling because it is transferable into another currency at a given, acceptable price. These are “real constraints” that affect the issue of sterling. Indeed QE, for reasons that I suspect are still not fully known but are perhaps associated with the peculiarities of the Credit Crunch and the bank balance sheets (to say nothing of zero hour contracts or the end of the third labour ‘price wave’), has not induced serious inflation in Britain. That is a minor miracle.

        Perhaps your thesis would fit 19th century USA very well; perhaps you can offer more modern examples, but I do not believe it fits the facts of the British economy. Incidentally, I do not claim we will “run out of money”. I claim only that we will run out of credibility, but in Britain’s case that is more fundamental. Economics is 99% psychology. What lies beyond that failure of credibility in the wider world is, I suspect, to become a target of weakness and exploitation by the markets: interest rate volatility, contagion, inflation or other nasty surprises.

      • John

        That’s why one of the conditions I listed is that governments have to let their currencies float. If you institute a peg you have to defend it, and a country with an external deficit can’t do that. Witness the ERM mess. Float the currency.

        What price will the currency trade at? That depends on the state of the economy, the level of spending, and whether or not that spending exceeds the capacity of the economy. The inflation limit. See my 23:46 reply to MBC.

        QE is no mystery or miracle, it didn’t cause inflation because it didn’t increase spending. It nudged people out of holding government bonds and into stocks and commodities, helping nobody other than the usual suspects in the financial sector.

        19th century US isn’t an example since they were constrained by the gold standard for a good chunk of that time, I’d have to look up how long. Modern examples include pretty much every country outside the eurozone. It doesn’t apply to euro countries because they don’t have their own currencies.

        When the crisis hit and eurozone bond yields went through the roof, why didn’t UK or US yields do likewise? Currency sovereignty. Eurozone yields didn’t fall until the ECB, the currency sovereign for the Euro, finally stepped in.

        So we’re back to the inflation limit I talked about, which is a real limit determined by the capacity of the economy.

    • I didn’t understand what you meant by ‘the UK faces only real constraints, not financial ones’. What is a ‘real constraint’ if not a financial one?

      • Real constraints are physical; the amount of raw materials available, energy, people, machine tools, the ability to use the above without wrecking our environment. These things can be increased over time, but not instantly.

        Money is different; the issuer of a currency can create it at will, instantly. We can actually run out of the things that form real constraints, but if we choose to we can always create whatever money we need, collectively, as represented by our governments.

    • Spot on. This is understood by far too few people.

      • Thanks. You’re right of course, and that lack of understanding leaves progressive and left thinkers and activists fighting against their own interests, while the neoliberals soil themselves laughing.

    • Although you say the illusion is that “deficits or debt are any sort of problem in and of themselves”, surely that’s a bit like saying a ship that lets in water isn’t a problem “in and of itself”. i.e. – true but kind of irrelevant given that there are no historical examples where endless money printing hasn’t sunk the economy and destroyed the currency along with it.

      Lets just watch and see what happens to Japan. They’re now well on the way to exploring your theory and we’ll all have a ringside seat in discovering what the scope of “in and of themselves” turns out to be exactly.

      • The point of saying “in and of itself” is that deficits are not inherently bad. Is a £90 billion deficit bad? You can’t asnwer that question just by looking at the deficit.

        Is the spending associated with that deficit driving inflation? If it is then it’s bad, if it isn’t then it’s not.

        If it’s okay now will it still be okay next year? That depends on what the economy is doing next year.

        Just looking at the deficit tells us nothing useful.

        Yes, we can watch Japan. Their government debt and deficits have dwarfed UK levels for 20 years now, and according to neoliberals Japan has been months away from disaster for every one of those 20 years.

    • I think you have presented a thought-provoking and well-defended case (on several fronts, with several commenters at once!). I disagree with you on British “currency sovereignty” because I do not believe the currency and the “real constraints” on the economy can be separated, except theoretically (I am not sure how far we are apart on this matter). The City is also a complicating factor in Britain. In addition, some of the effects that you appear to see as causal, seem to me contingent.

      Thinking again of “sovereignty”, I do not believe that interest rates in the US will diverge from interest rates in the UK. If, or rather when, interest rates rise in the US I would expect the UK to follow, probably quite closely. I would be interested in your thoughts.

      On QE you are right that a switch was made into the stock market, where there was, incidentally price inflation as a result. I also think there were many unexpected ‘contingencies’ about QE; not least its failure to stimulate the real economy. I give the BofE the credit in believing they had the real economy in mind at the outset. But then, the results may have been inflationary …. ….

      I trust all that does not seem peevish, as I have much enjoyed tonight’s discussion. Thank you.
      Why does this remind me of John Law?

      • Thanks for your positive comment, I’ve enjoyed the discussion too.

        We may not be too far apart. The problem with the capacity provided by currency sovereignty actually being used is, as you say, The City. Or neoliberalism more widely.

        This is why I was a supporter of Scottish independence. An independent Scotland had the chance to escape the neoliberal consensus that dominates the UK, to make the changes necessary to create a fairer society. I can’t see those changes happening in the UK, at least not without a huge external shock, either another crash or a positive example of what’s possible.

        Might SYRIZA or Podemos provide a positive shock? Not with their current policies, but who knows how things will develop.

        Going back to my first comment, UK government debt is not problem in terms of the government’s ability to service it, but it is a problem in that the Westminster/City nexus use it to scare people. If progressives and the left continue to buy into the scare story we’ll make no progress.

        If you or anyone else wants a deeper look at what I’ve been talking about, and from actual economists, I’d suggest doing some reading on MMT, Modern Monetary Theory. People like Bill Mitchell, Randy Wray, and Staphanie Kelton.

        Mitchell:

        bilbo.economicoutlook.net/blog/

        Kelton and Wray (and others):

        neweconomicperspectives.org

    • I would like to thank yourself and a John S Warren for your debate on this blog, it has been very informative and has answered many question I had regarding the currency debate from the referendum.
      I always thought that using sterling was a mistake and as an independent country it would be best to have our own currency, issuing and spending its own money with no need to go cap in hand to BofE and free of the constraints that this would place on our economy.
      I believe if the YES campaign had debated the currency issue better and raised and explained the issued involved such as yourself and John have, then a lot more people would have had a better grasp of the problems and allayed many of the fears they had.

      • I agree with Lawrence. I have long thought the most astute solution to the currency stand-off (which was predictable) would have been for the SNP Govt to have cut a very discreet deal with Norway – to be revealed and used as Plan B if forced by events.

        The Krone is a rock solid currency and the Norwegian Central Bank highly-regarded. International markets would have no problem at all with a Scots currency tied for a longish interim period to the Krone. Any currency agreement, whether full fledged or partial, of course implies fiscal constraints and so a certain lack of sovereignty. But far better cede some sovereignty to a mid-sized well run neighbourly oil-producer that has sympathy for social democratic fiscal policies, than to a totally unsympathetic neo-liberal regime down south.

        You might say that the Norwegians would have balked at this for fear of upsetting London. Possible, but I am not sure. With the right sweeteners, such a tie-up might have attractions: for the Norwegian energy sector (it would be worth extending privileges to them) and for both sides in building up an oil fund where Norway has world-class asset management expertise.

  4. Thank you for this John.
    The paragraph which sticks out for me is:

    “When Redwood offers the observation that, “the level of state bank indebtedness has been curbed substantially”, what he fails to mention is that large private sector banking losses have been transferred, permanently, to the public sector by the neo-conservative apologists for unregulated free-enterprise, and added to what he terms “public borrowings”; the National Debt (the public sector). It seems that in Britain the word “free” in “free enterprise” is there to ensure that in banking at least the profits and assets remain “private”, while the inconvenient losses and liabilities are despatched smoothly and seamlessly to the “public”; typically represented by the defenceless ‘paye’ taxpayer.”

    Perhaps this explains why the Westminster cartel is so blind to the tax evasion of the multinationals and large companies. The rich live on the pickings and the “public” take care of the “inconvenient losses”.

    • sums it up for me Frank. John’s article is extremely bleak news. What’s the point in voting at all?

      • What’s the point of voting? Because the lifeboat of Scottish Independence is still in the davits, ready for use. The trick will be to get it free before it is dragged down by Titanic UK as she founders

        Modern liferafts go down with the ship, and then automatically release at a certain depth. I fear the UK will have to sink, before we can float free. If you have property, sell it before the crash.

      • There is always a point in voting nickweechblog. Don’t lose heart and keep your focus.
        The UK is crumbling and it is only a matter of time. We have a strong and growing collective will in dear old Alba, which is gathering force every day.
        It is merely a question of whether our sovereignty comes before or after the complete collapse of the UK. I hope it comes before.
        Had we been independent from the 19th September, we would be sitting in a much fairer place, with the cancer having been cut out. However, we still have work to do and the GE is the next stage.

  5. the cost of servicing the debt is pretty good for UK no? should we not be buying into the “debt bomb”narrative, is not increasing debt bt one way to generate deman in the economy?
    ta
    mura

  6. We can go over these topics time and time again but the best cure is to work together to put an end to the situation once and for all . And to ensure the people that voted NO the last time are with us this time .

    • This is, indeed, what is required John.
      Gaining Independence for Scotland means that we would control ALL our affairs and would also be accountable for ALL our affairs from then on. We can then FREELY choose the direction in which we move and move well away from neo-liberalism. The debate above has been extremely helpful, dignified and thoughtful.
      As FlimFlamMan says, “Real constraints are physical; the amount of raw materials available, energy, people, machine tools, the ability to use the above without wrecking our environment. These things can be increased over time, but not instantly.”i
      Increasing our productivity becomes important and I believe we have enormous talent and resources in this country to build up our manufacturing again.
      I also believe that we have the best, and most admired, politicians, such as Nicola Sturgeon, Alex Salmond, Patrick Harvey, John Swinney etc, who have positive ratings and the ability to lead with compassion and judgement. They do believe that actions speak louder than words, something that the Unionist parties do not and have demonstrated admirably.

  7. This article is spot on.

    Obfuscation, as always, seems to be the name of the game in the run up to the general election. Endless rubbish about ‘tightening belts’ and ‘we’re all in this together’ will no doubt be spouted over the next few months.

  8. It sounds extremely bleak. What can Alec Salmond actually do to help??

  9. The main problem with here is the rise of private debt. As the UK doesn’t really make or export anything anymore it has relied on personal credit as a way to expand the economy and the supply of fiat currency. As we saw in 2008, the recklessness of the city of London fraternity who were actually at the centre of the crisis (anything goes in London) walked away wealthier whilst the tax-payer footed the bill and now faces austerity.

    Unperturbed by a private debt crisis the govt are again encouraging individuals into even more debt via help-to-buy schemes etc all whilst incomes fall. This is how the uk economy is growing -by an increase in private debt. It’s ironic that unionist politicians rub their hands with glee as the price of oil drops, in their claim that scotland didn’t have a viable economy whilst the UK reaches a level of leverage second only to japan.

    There is no interest rate reduction to fall back on this time (it didn’t help the last time anyway), and will probably see further QE and continued exponential expansion of the currency. Fiat currencies don’t tend to last more than a few generations for this very reason.

    wealth is never destroyed – it is merely transferred – and the city of London establishment will win again.

  10. We all speak of political democracy but much less of economic democracy. Capitalism destroys economic democracy in that those with the most wealth in the end, control our lives. We don’t have a voice.

    We know we’ve been stitched up to pay the debts of banks, allowed by politicians, but there seems to be nothing we can do. In the past we could have happily shot some of them -many of them. Pour encourager les autres.

    Can anyone tell me please, when a country borrows money, (billions, trillions) where does it come from?

    Who is the lender?

    Where does the lender get its money from?

    If a country defaults on a debt, who sanctions it, and how?

    Thanks

  11. I noticed the other day the Tories declaring they have halved the deficit. It’s an utter lie, and it’s going completely unchallenged in the press.

    The last year of Labour saw the deficit at £160bn (including bank bailouts)

    When the Tories came in, they decided to withdraw any bank bailouts from the calculation, and in the years since the deficit has gone from £120bn to £114bn to £107bn.

    They now claim, with the help of the Institute of Fiscal Studies help that this years deficit is £90bn – as reported by the BBC at the beginning of December 2014. As the fiscal year runs from March to March, it was stunning to see the BBC let this go unchallenged on their main news programmes.

    How can anyone make a claim to this years deficit only 8 months into it ?

    Of course, it happens every year. Mid winter the claims of deficit reduction are made loud and clear yet when the official figures come out at the end of April, we see yet again how wrong they got it but the upwardly revised figures never seem to get quite the coverage that their low estimate counterparts received a few months earlier.

    This year being an election year the April figures will not be published before hand, you can guarantee that.

    So when you hear the claims that we are ‘half way through deficit reduction’ it’s absolute rubbish. In reality the cuts have reduced borrowing by around 10%, to achieve the rest is now impossible without destroying the entire welfare state and health system because as John points out, tax receipts despite apparent increases in employment are actually decreasing. The same can be said of business taxes, they to are falling.

    The only way currently to reduce the deficit is by cutting public services, and if this is the scenario we have ahead of us, then what you have seen so far is a mere drop in the ocean to the utter decimation that lies ahead if Osbourne wants to zero the deficit in a few years.

  12. A government can borrow money in various ways.

    It can borrow from its own central bank, here, the Bank of England.

    It can literally print money in its own currency – quantitative easing.

    It can also raise money by issuing government bonds, which are known as gilts, or ‘gilt-edged securities’ because the bits of paper certificates issued by the Bank of England were once gilt edged. I’m not sure if just anybody can buy these bonds, if for instance Chinese businessmen and Russian oligarchs can by UK bonds, or even the Chinese government. But I think that might be the case? A gilt is regarded as a good security; it is as safe as the government is. Ordinary people can buy gilts; you are basically lending your money to the government. Pension funds like to buy gilts.

    A government can also borrow money from the World Bank, the IMF, the European Central Bank, etc. But this sort of external borrowing seems to be frowned on; when Callaghan negotiated a loan from the IMF in the 1970s there was horror and shame. When a government borrows money from external agencies like that, it is tied to the conditions they impose on the loan. African countries get hammered. It is subject to the interest rate they set. During the indyref when it was alleged that HMG wouldn’t be sharing the £ with us in a currency union, it meant that an indy Scottish government was going to have to borrow money to meet its deficit through one of these sources, and it was alleged that we would pay a higher rate of interest for that because we were an unknown quantity. Each country has a credit rating. AAA is the top rating. The lower your rating the more interest you pay. Economic and financial experts advise these international money markets on the rating of a country. There are various ratings agencies, e.g., Standard and Poors.

    As to where do lenders get their money from? From anybody that has money to invest.

  13. The deficit is the difference between what we spend in public revenues and what we raise in public revenues. If we don’t raise enough in taxes to pay for our public expenditure, why do we not raise taxes?

    Also, why can’t public expenditure be reduced without resorting to cuts? For instance, rents. The biggest element of public expenditure is on welfare, and a very large part of this is housing benefit, or credits to working people who do not earn enough to live on – a large part of their costs being their housing costs because rents are so high, especially in London. Why is the public purse subsidising private landlords by this means? Why not tax rents at such a level that it either generates enough revenue to pay for housing benefits or ‘encourages’ private landlords to lower their rents to an affordable level below the tax threshold so that low wage earners no longer need top ups from the public purse? And why not force employers to pay a living wage?

    All of these measures would reduce public expenditure and thus the deficit.

    When we had public affordable housing, rents were kept low, which in a way, was a general subsidy to the whole economy, employers and employees alike, and people were happier and more secure.

  14. Bothy Basher,

    All the UK money in the world is, and was, created out of thin air by either the government (Central Bank), or by the high-street private companies we call banks.
    The government/Central Bank can and does create money without debt to anyone. However all the money produced by banks is only created when they give a loan (such as a mortgage), so it is debt, that must be paid back to the bank eventually (neglecting defaults, etc).

    There is effectively no control by the government on bank-created money, apart from setting the base interest rate, which is a weak or ineffective lever, so the ‘boom and bust’ cycles are mostly caused by too much or too little bank lending, not by government policies.

    So-called ‘borrowing’ is the selling of government bonds. The holders of these bonds don’t want cash, they would rather have bonds, which are completely safe and give a guaranteed return, unlike cash. The process of ‘borrowing’ by a government is an attempt to keep the money supply constant in the belief it will prevent inflation. Yet the banks are allowed to expand and contract the money supply at will. How does that work?

    Government ‘debt’ is not what people think it is. There is not an army of government bond owners out there clamouring for their cash back. The cash owners are usually queuing up to buy safe UK bonds instead.
    The government Central Bank (i.e. the Bank of England) can create debt-free money at any time to purchase anything that is for sale for UK pounds, no borrowing of its own currency is necessary for this. For example Quantitative Easing was simply the Central Bank creating money out of thin air to buy back government bonds from those who wished for cash at the time.

    The UK (or any government that issues its own currency) can always pay its ‘debts’ if they are in UK pounds.
    Default would be by the political choice of the government, not by necessity.

    It should be clear from the above that the desire of the Coalition to ‘reduce the defecit’ and ‘pay back the debt’ is either massive macro-economic ignorance (unlikely) or simply a means to justify destroying or privatising the welfare state for ideological reasons by comparing the macro-economy of the UK to a household that has to borrow money from a bank, and pay it back. Lies.

    • Having difficulty understanding how the government can just create money out of thin air. Why would it bother taxing anybody in that case? Can you explain?

      • In order to create demand for the currency.

        I could create a new currency right now, but would anyone want to use it? Well, given how nutty people are going over bitcoin and the like, maybe they would. I can’t guarantee it though.

        Governments can guarantee people will want to use their currency by levying taxes in that same currency; people will want the currency so they can pay their taxes. Given that base level of demand, use of the currency will expand because some base level of ‘value’ has been created by that tax-driven demand.

      • Sorry, appreciate your replies but none of this makes any sense. Money is wealth and wealth has to be based on something physical at the end of the day, either it’s gold bars, or its manufactured goods, or its food, or it’s minerals or it’s oil. You can’t just create money out of thin air. Not real, actual, money.

        It would be helpful if you could provide some concrete examples of how, physically, you create money out of thin air.

      • Nothing to apologise for.

        I’m pretty sure I’m not going to be able to adequately deal with the concept of wealth in a blog comment. Thomas Piketty just wrote a chunky book that deals with the subject and the result is patchy at best.

        Money isn’t wealth, it’s a token. A token which can be used to represent wealth, to acquire wealth, even to enable the creation of wealth.

        We’re dealing with massively complex economies here, and worse than that we’re talking about the complexities and irrationality of human behaviour, so I’ll warn you right now that what I’m about to type will be wrong. It’ll be less wrong than the usual neoliberal tosh though.

        Taxes drive the demand for currency. Once that base demand is established, people will be willing to transact with one-another using that currency because they want to acquire it themselves, and because they know others will want to acquire it.

        So now the currency has a more general usefulness; it can be used not only to pay taxes but for transactions within the private sector.

        But how much is it worth? This is the human behaviour bit; dragons and whatnot.

        On the surface it’s simple: too much spending will exceed the capacity of the economy to produce goods and services, you get accelerating inflation, and the value of the currency goes down.

        The opposite is true as well, too little spending – a currency that is in short supply in other words – will produce a higher value, and may even turn into outright deflation. The austerity – too little spending – in the eurozone is a good example of this. So you get a higher value to the currency but at the expense of a decimated economy.

        Push that too far though and the dire state of the economy can end up reducing capacity to the extent that deflation flips into inflation. At what point will that happen? Who knows. Not me.

        So money can be said to have something backing it, even modern fiat currencies. It’s not a direct promise to convert to gold though. Modern currencies are backed, in some sense at least, by the state of the economy in which they are used. That backing is indirect and fuzzy, and can be counter-intuitive, as with the ‘strong’ euro.

        Create enough though, and you can enable new wealth creation. He’s another way of thinking about the token thing: money represents relationships. Rather than the real relationship, in a single location and point in time, that is needed to barter your chickens for your neighbour’s buckets, you can create temporary relationships spread over distance and time.

        You want a new cellphone from Taiwan? Barter is going to suck, but money enables you to take part in a temporary relationship with people thousands of kilometres away who you don’t know and will never meet. The money which changes hands when you buy that phone connects you with the people who made it, sold it, imported it and so on.

        So, as I said, create enough money and you can create new wealth, you can enable new relationships which would not otherwise exist, and create real goods and services in the process. This means that, contrary to what many will say, simply creating and spending more money won’t necessarily cause accelerating inflation. If the capacity is there, or can be added, it will instead grow the economy.

        As for physical examples, most money in circulation is digital. Get a loan at a high-street bank and they will tap some keys, mark new amounts on balance sheets detailing the assets and liabilities involved, and bingo, you have enough money for the new car. They didn’t ‘get’ that money from anywhere, the act of making the loan creates it.

      • You & me probably don’t agree on much, but the view on here that somehow there is no downside to creating money out of thin air is daft, and I think that we’re in agreement on that.

        Like you say – why would the government bother taxing anybody. Or borrowing money from the markets and paying it back at a cost?

    • You’ll be shocked to learn I agree with just about everything you wrote.

      The one exception is that even government issued currency is debt in that governments promise to accept it in payment of taxes and other levies. It clearly is used more widely, but in the first instance currency is a universal, anonymous tax credit.

      Bonds then add a promise to pay interest, in more tax credits.

      • Sorry, none of this makes any sense.

        ‘Government issued currency is debt in that governments promise to accept it (what, the currency, or the debt? Do you mean foreign governments? And that they accept our currency or they accept our debt?) in payment of tax and other levies’.

        How can ?foreign governments use ‘it’ (our currency, or our debt) in payment of tax and other levies? Do you mean TO pay tax and other levies?

        Not getting a clear identification of subject-object-verb or their interaction here.

      • MBC

        No, I don’t mean foreign governments. The question was why do governments levy taxes when they can create money out of thin air. The answer is governments do this in order to drive demand for the currency they issue

        Using the UK as an example, the UK government promises to accept UK currency, issued by the same UK government, in payment of taxes.

        So currency is a debt in that sense; the government which issues it also promises to accept it back in payment of taxes.

      • So yes, TO pay tax. Editable comments would be nice.

      • Are you saying that the one and a half trillion of debt is irrelevant and if so why is it costing aprox.fifty five billion a year to service it?Sorry its hard getting my head round this and i’m also trying to convince my idiot no voting brother to think agian.

      • Finally to the heart of the matter in your last comment but one.

        Money has no value of itself – it is merely a means of exchange. It is, of course, a brilliant idea and makes our very complicated interdependent society possible but it’s ‘value’ is dependent entirely on trust.

        Unfortunately we have long since got to the stage where we confuse money with things that have real worth, which boil down to the resources around us and our own effort and ingenuity (to the extent that some involved in finance seem to consider their form of employment to be more important than that of those who ‘plough the fields and scatter’).

        Billionaires know this fine well and do not keep their wealth in the form of currency (and what they do keep ‘liquid’ will undoubtedly be in various currencies) – instead they ‘buy’ things that have real value – land, property, energy and water supplies etc.

        Fair enough, you might say, only it isn’t. This means that those who happen to have money at the right time can ‘buy’ on the cheap many things that the rest of us laboured to produce – e.g. in Greece and Spain at present. They can then use the money made or raised from collateral to acquire more things of real value.

        I haven’t read Mr Piketty’s book but I gather he says much the same – that wealth attracts wealth.

        But it’s worse than the ‘ownership’ of mere things. Those who attain wealth also have power, the means of control – and they use it.

        I seem to recall that Rupert Murdoch once said in the 80’s that, by the year 2000 there would be 10 people in control of the world’s media, and he wanted to be one of them. I think that anybody who says something like that and has the slightest chance of making it happen should be locked up for their own good – it wouldn’t do the rest of us any harm either.

        And to get back to the good old UK – some here have been, in recent times, looking down on the people of Greece and Spain as indolent Mediterranean types living above their means. But we were way ahead of them. The country that produced the greatest empire ever known had to go cap in hand to the IMF in 1975 and, as I remember, the only reason we were bailed out by the high priests on semi-reasonable terms was because, you guessed it, the oil was just coming on stream.

        So, will it be Rule Britannia or five Chinese crackers – now that’s the question.

      • ian

        It’s irrelevant as far as the government’s ability to service it, to issue new debt, and to run continued deficits. It’s not irrelevant to the private sector because that debt is the net saving of the private sector, or more accurately the non-government sector. See my 22:37 reply to tartanfever.

        1314

        I agree with everything you write, except this:

        “And to get back to the good old UK – some here have been, in recent times, looking down on the people of Greece and Spain as indolent Mediterranean types living above their means. But we were way ahead of them. The country that produced the greatest empire ever known had to go cap in hand to the IMF in 1975 and, as I remember, the only reason we were bailed out by the high priests on semi-reasonable terms was because, you guessed it, the oil was just coming on stream.”

        The UK didn’t need the IMF bailout, but the government of the time seemed to think it was still operating under the constraints of the Gold Exchange Standard that was part of the Bretton Woods agreement. The GES collapsed in ’71 and was officially ended in ’73 though. Either that or they were suffering some other incompetence.

        “But it’s worse than the ‘ownership’ of mere things. Those who attain wealth also have power, the means of control – and they use it.”

        This is key, and it’s getting worse.

      • Hi FFM –

        ‘Either that or they were suffering some other incompetence.’ was more the point I was making with the attitude towards Greece and Spain.

        And then there was the complete debacle of our very short immersion in the ERM.

        The point being that you don’t become financially omniscient just by being part of the UK government or, indeed, because you went to the right school. The UK government and those from the playing fields have proved on various occasions to be just as incompetent as many others around the world.

        But you wouldn’t have thought so from their invented disaster scenarios for an independent Scotland – I can’t remember how far ahead they decided they could predict, maybe as much as 50 years at one point. Pity they couldn’t predict a couple of years ahead when they took us into the ERM.

        If it only hurt when I laugh, that would be a bonus.

  15. This may be a very naive question…..but I would much appreciate a response. If the public purse has been used to bail out the banks, then surely there must have been an agreement to repay this borrowing from the public sector to the public sector. What were the terms and conditions of this bailout and when can we expect this to be repaid? If not, why not?

    • Hector.

      There are no limitations on repayment of the bailout. Darling didn’t demand a damn thing when the banks came begging — he didn’t even tell them that any publicly owned bank would see it’s bonuses stopped.

      The plan is to sell the publicly held shares at a price that will see as much of the bail out repaid (I can’t remember the price threshold, I think it’s about £5 a share when they were bailed out with £45bn in 2008/9). However, if Osbourne keeps up his track record (Royal Mail) the shares will be sold of dirt cheap so his city friends can buy millions of them at knock down rates.

      RBS is currently trading at £3.70 a share, which if they were sold now would see the tax payer lose £10bn.

      So in a nutshell, the shares will be sold off when they hit £5 (which will be years away)

  16. Thanks to those who answered above on some economic/democratic questions I asked. I have much to think on, and will do. Others too I hope. It does indeed sound like much ‘smoke and mirrors’ except that I have to pay the price – and you too.

    Meantime, Brian has put his finger on an issue barely touched on by our ”free press”, which is the destruction of our common wealth, our welfare state under the cover of austerity on a debt that the population did not incur. The good people (our parents) who created our social benefits like the NHS which we all collectively produce would be so ashamed of us in our feeble acceptance of being robbed. If the robbers were more accountable in an independent Scots Parliament we could take their names and eliminate them. (ok a bit of fantasy here – it’s not individuals but a system).

    This economic sleight of hand needs the help of the media in shifting consciousness and I have to say it has been done very well. Many ordinary wealth producing people now see the ‘need’ for austerity. Turkeys supporting Xmas comes to mind..We are guarantors for a debt we didn’t sign up for.

    Willing lambs to the slaughter, we are ourselves ‘sic a parcel o’ rogues in a nation’.

  17. The current situation can be described as servicing the debt ,rather than reducing it. Its no different to the individual with the visa borrowings greater than the annual salary. Sure he can spend all his income paying the interest and keeping the wolves from the door. But eventually a few unexpected things will happen. The man will find that he has no nest egg for unexpected bills. He will then be forced to take higher interest loans. So there will be debt on debt and eventually bust. That’s where the UK is at the moment. We are one crisis away from bust and its inevitable not probable.

    • Except my visa bill isn’t denominated in a currency I issue, while the UK government’s ‘visa bill’ is denominated in the same currency that the UK government issues.

      I have to acquire currency to pay bills, the UK government, like all sovereign governments, doesn’t.

      • There is real wealth. And there is fiat money. The two are only connected by a thread called ‘confidence’. A government can print all the fiat money it wants, but if the markets lose confidence that the connection between virtual and real weath exists (even to a small degree), the money cannot purchase external goods. In short: Weimar.

  18. 30+ SNP MP’s = Scots majority = Independence. Tick-Tock.

  19. Of course it does Darien. The SNP are wise enough not to suggest this pre election. Neither will they declare independence with a majority at Westminster. Independence will just happen due to a combination of unique factors making it inevitable. However it will take a few years of weak coalition government at Westminster before it finally happens. They will chuck in the towel with Scotland in 2017!

  20. The biggest threat here is the power given to private banks to create new money. This unrestricted power allowed them to triple house prices in just 15 years. The worrying thing is that nothing has changed. They are still unregulated and to make matters worse the tax payer, through schemes is helping to re-inflate the housing bubble – the UK’s only growth indicator.

    Our wealth is being drained away through monetary policy (ZIRP) and it’s hard to see any separation now between the city of London, BoE, and uk government (whether that be labour or Tory).

    I believe in Scotland we should seriously be looking at alternative ways of trading outside the currency and at least gaining some monetary independence from this pro-cyclical nightmare. It doesn’t necessarily mean looking at bitcoin and the like. Perhaps something more akin to the ‘WIR’ economic cooperative in Switzerland…
    http://p2pfoundation.net/WIR_Economic_Circle_Cooperative

  21. I understand that Film Flam. But there is such a thing called defaulting on debt! Even large countries like the UK can fall into this position. Remember the UK scurrying to the IMF in the 70s? We have seen Eire and Iceland getting into trouble recently for overstretching. That’s where the EU comes in to bail them out. The difference is that Eires debt is not historic like the UK. The UK has debt going back to the 40s which is incredible for an oil nation! The debt has grown every year since then. Eventually some things got to give. We are staring down the barell of a gun. Osborne has increased the debt not lessened it. At the same time the austerity has held back growth with the intention of being frugle and reducing debt. If both have failed that leaves the UK in a dangerous position. The debt cannot be massaged forever. What happened in Detroit is coming to the UK and soon.

    • Yes, I remember ’76. It was completely unnecessary. I can only assume that the government at the time thought they were still operating under the Gold Exchange Standard.

      No government can be forced to default if it:

      issues its own non-convertible (fiat) currency

      lets that currency float

      issues debt in that same currency

      Default was a genuine risk with Ireland, and the other Euro countries, precisely because they gave up their own currencies. Iceland had other problems, like rampant criminality in its financial sector (sounds familiar), but default wasn’t one.

      • Hi Flim Flam, I’ve been following your arguement which is very interesting and clearly well informed. It could just be me not understanding, but what your are putting forward seems very similar to Monetarism? Use the amount of money in the system to stimulate growth and that’s about it? (i think I may be wrong but is this what you are trying to lay out? Except my apologies in advance if not).

        As for sovereignty, debt issued/ borrowed only in sterling? What about the existing sovereign debt held in other currencies? How do you service it while running a deficit? Or do you default – others do and have going back to the Spanish in the 1500s, Argentia more recently I suppose? As John Warren pointed out the Uk is already interconnected?

        And he’s right that both Labour and Cons primary aim in office will be to reduce the defecit and hopefully return to surplus (the debt of course remains and will be slowly chipped away at indefinately). He’s wrong that there is little difference in how to do this IMO. Which I shall come back to in order to annoy the SNP, those dastardly Labour crowd (lol).

        The UK economy, the value of Sterling, the real consequence of the debt (you are right theoretically that is imaginary (all debt is) but it is made ‘real’ preisely because these things aren’t sovereign but measured against other economies/ currencies. They only have value and meaning through interdependence. To do what you’e proposing (to retreat from the global market UK or Scotland – if I’m correctly reading you?) would only be possible if the UK/ Scotland could manage an entirely self sustaining econ? Which it can’t. Government spending is subject to borrowing and only to borrow internally in Sterling?

        I agree with your point that QE is fine when it comes to saving banks (but that was mainly to protect investors/ pensions/ savings and a wider 1920’s style banking collapse.) but not for other purposes. liquidity and all that. The fear of inflation and hyperinflation/ printing money is hypocritical.

      • Bernicia

        No apologies needed.

        Monetarism was all about managing the economy by controlling the amount of money in circulation, via changes to interest rate charged by central banks. This is the interest paid by commercial banks on loans made by the central bank, not interest paid on government bonds.

        It didn’t work, because it was based on the just plain wrong Quantity Theory of Money, and because – even if the base theory weren’t wrong – its ‘control’ mechanism was flawed. Interest rates are really only effective in one direction, which gives us the expression “pushing on a string”. This is one form of wider monetary policy, ie monkeying around with various interest rates in order to produce some desired result. It’s haphazard and fuzzy; the string doesn’t go where you push it.

        Fiscal policy – direct government spending and taxation – is far more effective since it is direct, and can be directED* to the regions, industries etc. that really need it.

        What I’ve been talking about, and what MMT talks about, is the fact that for currency sovereigns spending can exceed taxation indefinitely with no inherent risk. The risk is not from a deficit, risk comes from excessive spending; spending beyond the capacity of the economy to respond produces accelerating inflation, whether or not that spending is accompanied by a government deficit.

        Is inflation in the UK accelerating? No, it’s been dropping for several years, and is now worryingly close to deflation territory. So we’re not spending too much, and we could actually use a bit more inflation.

        So Monetarism was about targeting interest rates in the belief that they would change the money supply, in the belief that that in turn would change the economy.

        What I’m saying, and what MMT says, is don’t target the money supply at all, and certainly don’t target deficits. Target the things that we actually care about, like jobs, good health care and education, transport, and everything else.

        If we decide we want more of those things, and we have the resources – raw materials, people, energy – to provide them then we can always ‘afford’ them because our government can never run out of money. If we can do it we can afford it, that’s the base message. If we can’t do it but we try anyway then that’s excessive spending and we get accelerating inflation.

        This comment is getting long already, so if you want tome details on how to avoid inflation with this approach I’d recommend reading Bill Mitchell’s work on the Job Guarantee.

        Once you’ve done all that, and the private sector and all the other countries we trade with have decided on their spending and saving, the deficit – or surplus – that the UK government ends up running is what you’re left with. It’s a residual; it changes according to what every one of the 55 odd million economically active people in the UK spends and saves, plus the same for all the countries we trade with.

        This is why governments tend to fail in their efforts to hit deficit or surplus targets; they don’t control it in the first place. If private saving goes up, the deficit goes up, if imports go up, the deficit goes up.

        It’s like trying to make your car cleaner by adding dirt to the water that comes off it when you clean it. No, do a better job of cleaning the car and you’ll get dirtier water, and you’ll actually get a cleaner car. The amount of dirt in the water is a residual, it doesn’t matter. What matters is a clean car. What if next week you clean the car just as well but less dirt comes off in the water? Does that matter? No, it just means the car wasn’t as dirty that week. Don’t target the residual.

        Well this is getting pretty long and I really only covered your first question. I have some things to do so I’ll respond to your other points later.

        * Are there formatting controls for comments that I’m not seeing? Pretend that ED is bolded or italicised.

      • Flim Flam Man:

        ‘The risk is not from a deficit, risk comes from excessive spending; ‘

        How is this true ? As John clearly points out, that deficit, or debt, which compounds every year has interest attached to it which does have to be paid. Currently that is £1bn a week. That figure has to be accounted for in our spending.

      • Bernicia

        Okay, lets try a shorter response to your other questions.

        Issuing debt denominated in a currency you don’t also issue is bad, it violates rule number three. The UK government’s issuing of yuan bonds was boneheaded, but fortunately the amounts involved are tiny. Servicing it means acquiring yuan, which isn’t a problem if it stops here. If it continues though, then the larger the amounts the greater the risk of default at some point down the line.

        What I’m proposing, a recognition of the actual capacities and constraints the UK faces, doesn’t mean disconnecting from global trade. What I’m saying really boils down to the fact that the UK government can increase spending right now without causing accelerating inflation.

        That increased spending would almost certainly increase the deficit, at least at first, but then later as the economy grew and tax takings increased the deficit might shrink. Either way it doesn’t matter, what matters is ending involuntary unemployment and creating a more just society in general, and avoiding inflation. Target the spending, not the residual deficit.

        The UK, or an independent Scotland with its own currency, or Greece with its own currency back for that matter, would also continue to trade internationally, and as part of that trade currency would also trade – rule number two: float the currency.

        “The fear of inflation and hyperinflation/ printing money is hypocritical.”

        Yes, with bells on. Inflation is a risk, but not where we are and not with even a large increase in spending. The UK government ‘printed’ like mad when the banks needed it, but ‘printing’ to eliminate food banks? Not so much.

      • tartanfever

        The debt is denominated in sterling.

        The interest payments are in sterling.

        Who issues sterling?

        The UK government.

        Can the UK government run out of something which it creates from thin air?

        No. So the UK can never lose the ability to service that debt. It *could* lose the ability to service debt denominated in currencies it doesn’t issue, so it needs to stop with the boneheaded ideas like issuing debt in yuan.

        That accumulated debt, and the deficits that created it, only exist because people here and overseas want to net save in sterling. We hear constantly about ‘balancing the books’. Well, the books always balance, but that means if one party is ‘up’ then some other party must be ‘down’.

        The non-government sector of the economy – meaning the combination of the UK private sector and the rest of the world – consistently net saves in sterling. They do not spend all of the sterling they receive in income.

        One side is up, so the other side, the UK government, must be down. If people reduce their net saving in sterling then the deficit will shrink or disappear.

        Through all this that either does or might happen, the UK government remains the issuer of sterling and can never run out.

  22. I apologise for being off the point here, but I am writing this as I have tried on a number of occasions to leave replies to comments on ‘Wings over Scotland’, without any success whatsoever. So I am hoping that a ‘Wings’ person will read this and take note.
    It is great to have Bella, where you get lots of great debate and information from articles, but you can also easily reply and see your comment immediately. Many thanks to Bella Caledonia. This is very much appreciated. I wish I could also take part on ‘Wings’. Sadly, I cannot.

  23. Better Togetherness will start any day now.

    Pooling and sharing, safety in numbers and shared government, secure futures for pensions, NHS, work orders for the Clyde… etc

    Any day now.

  24. A lot of interesting to-ing and fro-ing between John S Warren and FlimFlamMan most of it way beyond my limited knowledge of economics. On the source of wealth I would have thought that ultimately it is derived from out planet and its crucial distance from the sun. Our wealth is basically a series of freebies which we can use and leverage. All of our food, agriculture and farming derives from these sources. All of our heat comes from the sun or from secondary sources such as wood, coal, oil and renewables provided by the planet. Everything we have ever made , whether in bronze, iron or plastic, comes from the earth.

  25. I’ve followed this discussion with interests. John Warren and FlimFlam have very helpfully articulating the situation and some possible scenarios in a way our Fourth Estate has failed to do. Why? Not because they do not have staff who understand the workings of currency issues, national debt and City trading, far from it; I can only conclude they have no interest in keeping the public informed or holding bankers to account via our elected representatives.

    And there’s the rub. All the points about QE are very informative but more explanatory than analytical. The GPEW have indeed proposed the very sensible policy of limiting currency issue rights to Government – echoed by the Scottish Greens in their Independence paper which argued for us to move towards a Scottish currency – but the banks and the City would not tolerate this, and therein lies problem: They own our politicians. Labour, LibDem and especially the Tories are wholly reliant on large donations from individuals and institutions who could not countenance that power being phased out. It’s the same reason there has been no real regulatory reform of the City, why gargantuan criminal frauds continue to flourish and go unpunished, why the taxpayer will never see anything remotely close to full repayment of the bailouts and why virtually all of the QE money has benefitted the same individuals and institutions who channel financial support to parties and offer sinecures and myriad other inducements to MPs and ministers of every stripe.

    As I’ve mentioned on previous posts, the Remembrancer – I know, he sounds like a Dr Who villain – is the only unelected representative entitled to sit in the House of Commons. His role is to represent the interests of the City of London in all Parliamentary debates, not by speaking publicly but by influencing behind the scenes. With a network of powerful and wealthy connections throughout the financial world, he can always find some extremely tempting reasons to persuade key people to vote / not vote / amend / philibuster on any bill the City does not like, or indeed bend the ear of Government ministers who might require advice on developing policy or indeed just some friendly personal guidance on their post-ministerial career and pension options. The office of the Remembrancer dates back to 1571 and the incumbent is one Paul Double. Yes, I know that makes him sound like a conspiracy theory all on his own.

    In short, Westminster is institutionally and irredeemably corrupt. Any concept of “economic democracy”, which someone above mentioned, is impossible when the very citadel of our rights is in fact in thrall to the City of London. (The same is true of Washington and Wall Street, possibly even more so.)

    There are many, many reasons Scottish independence would be a great thing for the peoples of this nation, but creating the opportunity to establish more accountable, transparent and democratic political institutions and systems entirely free of Westminster is chief among them.

    Regular readers of Bella threads may notice I’ve posted similar contributions recently but I thought it was important to repeat some of these for context as to why Scottish independence is so frightening to Westminster and the CIty. Yes it would be a dimunition of the UK’s standing in the world, yes unpredictable political reprecussions would ensue and yes there would be unprecedented upheaval in the seat of Power but the most pressing worry is more far acute than any of that and is between the lines in the exchanges between John Warren and FlimFlamMan: Scottish Independence would precipitate a debt crisis.

    Deficit and debt are linked; essentially we borrow the difference between tax revenues and actual spend. UK credit rating, gilts and QE capacity would have been critically diminished at a time when the country is gorssly overextended, especially If Scotland removed its share of the gold and other assets. This was the very point the SNP predicated its “sensible” proposal to share the pound. Osbourne, Balls et al calculated – correctly – that facing down Salmond on this knowing he could not get away with threats and the very question would generate doubt amongst the public and undermine the SNP’s economic case for independence. In truth they could never have followed through. UK gilts would have traded down rapidly and its credit rating summarily downgraded. Printing money would have been severely constrained, if not impossible for all the reasons FlimFlam set out as making it viable at present – such a significant percentage of future tax receipts flowing to Scotland rather than the Treasury would undermine confidence in the pound which, in any case, may have had a surfeit flowing through the UK economy were Scotland to peg elsewhere or launch its own currency, which would have come sooner or later.

    It is for all these reasons I don’t believe Scottish independence will be won easily. Some contributors seem to believe electing (say) 30 SNP MPs and winning another majority at Holyrood 2016 will see a declaration or another referendum sooner rather than later. Maybe there will be a referendum on Europe and the English Right will open the EU exit door. Perhaps. Maybe electoral success for Syriza and Podemos will change the goalposts, challenging the instrinsic neo-liberalism of the EU just as TTIP is agreed and generating anti-EU feeling amongst the Left here and elsewhere. Would Scotland vote for independence outside the EU? Would we have the cojones to start our own currency? Would we be dragged down by the foundering rUK debt before we got a chance?

    Whatever scenario, the CIty will not cede control of Scotland without a vicious, nasty fight. Too much is at stake for the players, and not just those at the table.

    • You have hit the nail square on and driven it home.
      The fact is the financial casino game is complicated by design to serve the purpose of the few who play and gain by it.
      Were it not so, the crises of 2007-8 would have seen the retail side of banking recapitalised while the investment side was placed in moratorium until such time as the ‘investments’ true values were assessed.
      Wealth must depend on product and the only products produced by the middle men of markets is to distort the true values of those products which, in the finance game generally boils down to swindling the consumers.

    • Good analysis, but isn’t this also one of the strongest arguement against Indy. Wasn’t this dissmised as ‘scaremongering’ Deutche Bank et al, claiming independence would precipitate a debt crisis/ capital flight from both Scotland and rUK. Scotland’s share of the debt (independently approximated at 10.5 Billion, only servicable dependent on tax reciepts from North Sea oil, which we now know would never add up + capital/ investment leaving Scotland due to the uncertainty on returns?) If there was a debt crisis in rUk due to loss of tax revenue/ confidence in the pound, higher borrowing costs etc. Then this would have also devastated an indy Scotland whether it used it’s own currency or the pound. And it goes back to the fundamental currency question and the spurious notion that countries without there own central bank are not really fiscally independent and therefore the country is not really independent. And CU without pol Union leads to divergence and ultimately crisis for the smaller partner in the CU if they forge their own policy path too different from the monetary policy of the shared currency e.g) Greece, Germany/ Portugal Germany etc. This was and remains the intractable problem for independence. And it isn’t going away any time soon.

      The other side to this analysis is that the city could care less about Scotland and would arguably be freer if completely devolved from the rUK (there are those on the right who argue this.) The city doesn’t rely on tax receipts but on the profits made by being the worlds largest trader forum in currency/ stocks/ bonds/ shares and so on. The tax receipts for the Uk are enormous. The problem isn’t the city per say but how it works. We will always need banks and creditors, but the question is how to regulate them for the benefit of all. Gordon Brown was right, this can only be done internationally.

      Incidently to Flim Flam, in October the UK were the first country in the world to issue bonds in Reminbi (Chinese) in expectation that the currecny will become tradable soon? If this happens then it’s likely that Cina will have to float the value of the currency rather than keeping it low. This should be good news for UK/ Scottish exporters. But it is further interdependence and the dangers are enormous given the lack of transparency/ capital flows/ dodgy borrowing and coruption in China. They Yuan as one of the world’s main currency reserves? mmmmm.

    • I managed to miss this yesterday.

      As a currency sovereign, credit ratings are meaningless to the UK, which helps explain why bond yields went down rather than up after the UK’s downgrade. It’s the same story with downgrades for Japan and the US. Currency sovereigns – provided they follow the three rules – pay precisely as much debt interest as they allow ‘markets’ to get away with, and not a jot more.

      Currency sovereigns have no need to issue bonds at all in fact. Their continued existence is down to a combination of factors: habit carried over from the gold standard, preventing an undershoot on the target overnight interest rate – also achieved by offering interest on reserves – by mopping up excess reserves, and because financial institutions and wealthy individuals have grown attached to the guaranteed risk free income.

      The UK does not, in short, face any conceivable debt crisis. If the three rules are followed then there is no mechanism for a debt crisis.

      A danger that the UK does, and rUK might, face is not a debt crisis, but a “failure to understand debt” crisis. Another crash while the economy is still fragile would clearly be damaging, and Scottish independence would have consequences. Independence would undoubtedly lead to a drop in sterling, though not one that would be bound to lead to crisis.

      Bad government responses to those events, driven by incompetence, could be disastrous. Perhaps along similar lines to those you lay out, perhaps in ways similar to what we see in the eurozone.

      In another comment – it’s too late for two replies – you say the UK government will sooner or later need World Bank support. This simply isn’t true, provided the UK government sticks to the three rules. I know that doesn’t answer the competence question, but I don’t have an answer to that one.

      So no fundamental debt crisis worries: I agree with you in that if the goal is to oppose Scottish independence there is absolutely zero justification for that goal to be found in the state of [r]UK government finances.

      “In short, the UK is unsustainable – socially, politically and financially.”

      This is true, provided the “financially” part only applies to private sector finances.

  26. Chilling stuff Dr Ew.

    I am shocked but not surprised at all this.

  27. Reading that sent a cold chill down my spine and i dont even live in the uk.

  28. Referencing the remembrancer and the city of London, I can thoroughly recommend the book ‘Treasure Islands’ by Nicholas Shaxson.
    The final chapter of the book looks at the City Of London and it’s relationship with the rest of the country. Quite fascinating….

  29. Also worth noting that the houses of lords and commons are modelled on the chambers of the city of London. It is one of the oldest local authorities in the world.

  30. @ John Warren…

    The contention is that there is no difference between Labour policy and the Conservatives. In one respect you are spot on, they will both seek to reduce the deficit, limit borrowing and pursue austerity measures to make savings. But the devil is in the detail.

    1) Conservatives – reduce borrowing to cut public spending by 25 billion, cut public services, shrink the state to 1930’s level, cut corporation tax, cut highest rate income tax to stimulate growth and spending, with the rationale of having a government surplus in all areas of spending within the next term. – Austerity writ large and devastating for the worst off/ social cohesion etc.

    2) Labour – reduce borrowing similarly to reduce deficit..but also scraping corporate tax reduction, investing in targeted public projects to increase employment and tax receipts, underwrite private investment in business lending to stimulate econ, increase tax for highest earners, including a banking levey (poss), Mansion tax, re structuring the deficit over a longer term, and possibly measured QE or other fiscal stimulous to kick start growth.

    It doesn’t seem like a huge difference but it really is. The tax and spend mix is really important. Although yes depressingly, a deficit pushing 100 billion is unsustainable so will have to be cut somehow.

    But to Indy people out there. I was never sure how the a similar deficit (presuming everything else was agreed CU etc) would have been reduced differently/ cuts in public services/ in Scotland? It was never really spelt out in a realistic way (maybe I missed it)? Feel free to splap me down and prove me wrong and bring me over to the brightside!

    This is why I firmaly believe the next election rather than being irrelevant is crucial. The Tories must be stopped.

    • Thank you. It doesn’t seem like a huge difference because it isn’t. Your huge differences are in macroeconomic terms microns. It is all PR fluff and spin. Some of the items you list will never happen, others will have little material effect; some will be designed not to have the effects ‘intended’. It is ‘pass the parcel’. Nothing really important or controversial is even addressed. This is all a managed ‘ritual dance’.

      Westminster is a Cartel. It services Westminster and London (especially the City of London), which is bleeding the whole of Britain dry. The Credit Crunch and the aftermath should provide all the evidence you require; if in doubt, read Gordon Brown’s extraordinary Mansion House speeches in praise of a City that was, a the very same time, laying the economy waste – year after year after year. Allow me to contradict neoliberal conventional wisdom peddled by, among others, the Labour Party: nobody forecast the Credit Crunch. False; indeed utterly false. Hyman Minsky predicted it, gave it the name “Credit Crunch”, and described in detail the precise form of financial catastrophe to come ( see the Financial Instability Hypothesis); Minsky died in 1994; his only surprise would have been that it took so long. If he could see the current mess I am confident he would be predicting another one will be a along in only a little while. I suspect George Soros is of a like mind.

      Following the Catastrophe, in the US, the Federal Regulatory authorities have issued fines and penalties that are far higher than in the UK (by a multiple of around 50 times); but far, far too many US Federal fines were applied against banks who were actually operating in London. It is shameful: See for example, the ‘London Whale’. Why did this happen? Because business moved to London in the decade up to 2008, because of stricter regulation in Wall Street; regulation in London was far, far slacker. You do not actually think it is talent and genius that oiled the ‘success’ of the City?!

      Furthermore, the new City regulatory system, replacing the hapless non-regulation of New Labour and Old Tory, is still wholly inadequate; do not take my word for it; it was the published opinion of the man tasked with designing it, Sir John Vickers; his proposals were changed, largely through City lobbying, and he appears to have washed his hands of it all.

      Meanwhile do not look to rUK to make a sea-change that will transform the politics of Britain. Frankly, such a proposition is risible. It has not happened, it is not happening now, and it will not happen. Could the North of England, or the West of England, or the Midlands (or the great cities of Birmingham, Manchester, Newcastle, Liverpool) stand up to London, and stand up for decency and fairness, even for themselves? Yes. Politically, have they done so in the last thirty years? No. Do they now? No. Will they in 2015? No. It will not happen. Newcastle, perhaps representing the most deprived, the most cheated part of England, was given an opportunity to establish an Assembly that would at least provide a focus and forum to fight its corner against the scandal that is London; the Liberal proposal after the last GE was rejected wholesale in a referendum. Whether through inertia, gullibility, despair,or worst of all, deference (who knows); nobody in rUK stands up to London. Fact. This is obvious and incontrovertible. Forget it.

      At the same time the political ‘centre’ in Britain now (excluding Scotland) is roughly mainstream-Thatcherism, as understood by Thatcher. Indeed Thatcher would never have dreamt of proposing or attempting what is now mainstream – in the Labour Party (remember Johann Lamont and ‘something for nothing’?). People forget that Thatcher was more impressed by Blair than her own John Major.

      • John S Warren,
        I think this is a very good point. The policies of the mainstream parties are purely window dressing. At the very foundation of our society is the creation and control of money and is in the hands of the city. Labour relinquished its opposition to the city of London during john smith’s prawn cocktail offensive in the 90s, such was the desire of labour to gain power.
        From then on the city has called the shots and the vast majority of politicians have let them get on with it, whilst enjoying the fringe benefits.

        I’m a fan of steve keen and his work on Minsky, yet frustratingly people like him, who actually predicted the financial crisis, are frozen out.

        Thanks for the article.

      • John

        Not so far apart; I agree with every word of this comment.

        One of Minsky’s students, Randy Wray, is one of the MMT scholars I mentioned, a group who managed to correctly predict the 2008 crash, the pathetic nature of the following recovery, and the continuing Euro disaster.

        One of them, Stephanie Kelton, has even been appointed as the chief economist for the senate budget committee in the US, for the minority side. Movement perhaps.

      • I know, I followed your link. I have long, long been an admirer of the great neo-Keynesian Hyman Minsky. He even made the notorious Ponzi (Madoff circa 1929 – there is nothing new) famous, all over again! Everybody – and I mean EVERYBODY – should read Minsky; some of his trenchant, beautiful papers are available free (pdf) on the Web. Read the Financial Instability Hypothesis!

      • @ John,

        I take your point, and share the frustration with the lack of solid regulation, (and incidently there’s a great BBC radio prog ‘why Minsky matters’ which lays it out clearly – Krugman also has a great talk). The seeds of the next crash being in the good times and so on, stability leads to instabilty not due to asymetric shocks necessarliy but own internal causal logic, ponzi lending on the assumption that asset values will always rise etc. I accept all this. What I still don’t get is how an indy Scot would be so fundamentally different given the structure of the econ? Your analysis is well considered but it fails to propose an alternative (unless I’m mistaken)? Is it that an indy Scot would be less reliant on financial services/ city therefore less exposed to the the incentive to constantly increase lending for profit, tax receipts for government, bankers bonuses, house of cards debt pyramids? Essentially a restructuring of the econ?

        Changing the financial system through regulation is possible asis a revertion to Keynsism (but as I’ve mentined before really needs to be international – a global independent regulatory body. The kind of thing Keynes put forward at Bretton Woods.)

        And I also disagree with you on the North of England. (I’m half Scot, half Geordie) There is huge interest in regional devolution. This as far as I can see (and not just cos I have cousins in South Sheilds) and would serve the central belt of Scotland better. I’ve mentioned this before also, but the key seems to think beyond the ridgid structures of the nation to overlapping forms of sovereignty. Devolve power to the cities. A centralised Scotland would just lead to more of the same.

        And in the light of the system not changing in the near future (until another ref) you say it doesn’t make a huge difference. I’m sorry, but it really does to the people on the sharp end. Why cut front line vital services when you can raise tax on houses over 2 mill in London? Similalry corp tax reduction or the closing of tax loop holes?

        And you say now rUk is mainstream Thatcher. But not Scotland? Have you looked at SNP policy? Or would Scotland, just by virtue of Indy be radically different to every other country in Europe with regards to eonomic policy? If so how? ANd do the figures and the crowding out of any other voice on the Yes side, must take the SNP whip etc, the massive rise in membership not vindicate those who voted no becasue they didn’t want a low reg/ low tax government in competition with a much larger low re/ low tax governmentto the south?

        But a good article anyway and the theory is spot on. Just the practicality (how to change things) which I struggle with.

      • Thank you for the kind words. It seems to me that you began close to some kind of analytical agreement, but by the end of your comment, you seemed simply to have gone back to where you began. You “take my point”? Forgive me, I am not convinced that you have. Somehow you at least seem, perhaps unconsciously, to be attempting to reconcile neo-liberalism almost as a kind of law of nature, with your underlying (unreconciled?) political values; in spite of evidence that there is an incommensurability. I hope that does not seem impertinent.

        I am baffled by the command to ‘devolve to the Cities’ and the supposed NEE enthusiasm for this when it is quite clear that Newcastle very recently rejected it comprehensively. That is the reality. There is no great demand for this in rUK. It does not exist. I regret to say that such a demand for devolution is not something that can be picked up overnight as an enthusiasm, or a fashion in the expectation of results in anyone’s foreseeable future; it requires time, commitment, endurance and substance. Scotland has a long, long history in ‘home rule’ or devolution, long before 1979; right back to 1914 (to venture no further); and a long history of disappointment. It has taken a prodigious effort to produce Holyrood. None of these factors apply in rUK. Your ‘city’ model seems to me to echo a kind of regionalism being peddled by Labour because it serves the vested political interests of the enfeebled Labour Party, especially in Scotland; where the last strongholds of its archaic political patronage and power hold sway in certain fossilised local authorities. These are the very last places I would look or expect to find ‘the future’; or even tokens of hope. Such ideas are also typical Westminster Cartel; choose something that is politically safe and not too lively; divide, keep the units small, easily manageable politically, and with a little patronage rule authoritatively from Westminster.

        Ironically the only city with proven devolved power in rUK is London, and the result has been to hand power to Boris Johnson; no surprise – QED.

        “Changing the financial system through regulation is possible as is a reversion to Keynesianism”. In Westminster? In Britain in 2015? What happened to “I take your point”? This is the opposite of my point. You have offered not so much as a scintilla of evidence for your optimism. Nothing. Absolutely nothing; because there is none.

        It is flattering to be commended for ‘theory’, but it misses the point. Most of the time I am pointing to inputs and outcomes; the bit in the middle, the theory, you may treat as a black-box. The regularities are between the inputs and outcomes, and that is all you may rely on (this is Hume, not Popper). the inputs and outcomes are real; the ‘theory’ is neither here nor there. I do not see anything ‘real’ in your analysis; there is only theory, or dreams.

        You repeated Gordon Brown’s internationalist cri de coeur. Bretton Woods, NOW? Sorry to repeat myself; it isn’t going to happen! At this point, going through your comments I began to think you have to be aiming for a kind of breezy whimsy. I had to pinch myself; the observation seemed so, well, naive. Neo-conservatism has destroyed all such consensus since Reagan and Thatcher came to power. It is dead: stone dead. The presiding genius of the political culture that could even imagine a Bretton Woods was the great Roosevelt administration (although he was dead). So I shall offer a quote from a speech of Roosevelt’s given in 1936. I think it demonstrates just how far our world has detached itself from such ideas:

        “For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.”

        He couldn’t be referring to us, could he?

        You are looking for answers, or is it a rabbit out of the hat? In either case I do not have them. To repeat the old joke; if I was looking for a way out, I certainly would not start from here. But I shall say this; the status quo does not work; Britain has shown no capacity to solve the problems it has largely inflicted on itself. Westminster is a Cartel. The city of London is out of control , has ruined us once, and will do it again. Constitutionally Britain is incapable of radically changing its constitution. These are the facts. I know where that takes me, but we must all form our own judgement.

        Thank you for you robust contributions.

      • John,

        Not impertinent at all if a touch patronising (please don’t assume to know my reconciled or unreconciled political values). Perhaps I have missed the point. Your position seems to be, neolib orthodoxy is here to stay without challenge on a Uk/ international level. You’ve looked into you crystal ball and decided this? But yet you seem to exempt an indy Scotland from this analysis? As I asked before why? It is totally inconsistent with your arguement. – like most yes people there is no answer just empty ‘impossibilist’ rhetoric and a finger pointed elsewhere. Also…

        Going back to ‘there not being a scintilla of evidence’ to suggest any other organisational method other than the neolib orthodoxy – this is just confirmation bias. There doesn’t need to be any evidence , paradigms shift unexpecdedly, usually out of crisis – I can imagine you sitting in Berlin in 1988 going, show me the evidence of the collapse of communism, or in 1979 – there is no evidence to suggest anything other than the postwar consensus – in South Africa in early 1990’s, no point trying because Apartheid is here to stay – France 1789 etc, China 1911, 1948, 1978, etc etc. But if you want evidence that the global economic system is not utterly static, Bretton Woods in itself is evidence, the end of Bretton Woods and fixed price control, prior to that the gold standard, the shift from mercantilism to free trade etc etc etc….there is not evidence to suggest reform is impossible either! You’ve read Hume and Popper, then you surely know the pseudo science of social prediction/ inductive logic/ falsification.

        The same goes for the city regions notion and over lapping sovereignty – So what if it was once rejected a few years ago in England? So there will be no next indy ref on this basis? And your analysis is too wrapped up in contemporary partisanship and selective evidence and bad history…Scotland has a long history of home rule, civic autonomy also has, perhaps greater…remember Rome, Athenes, the Hansiatic league? Hamburg today is still efffectively an autonomous entity, as is Chicago or Shanghai or Mumbai, or Barcelona, or Buenos Airies, or Sao Paulo or Bogota or the Cantons of Switzerland as were the great Victorian boroughs of Manchester/ Glasgow/ Leeds in ‘real’ terms in the 18th and 19th centuries before centralisation (especially Thatcher)…just look at the beautiful civic buildings/ infrastrucutre in these cities built with local revenue sources (the wealth of course due to Empire but the functioning well due to appropriate scale and local needs) The centralised nation state is not some ‘Natural’ norm! You want real power to irradicate poverty/ regenerate the econ then this is a much more efficacious way to organise things than another monster parliament in Holyrood at war with a monster parliament in London (the point is to look where power best fits and devolve and spread it while maintaining the vital links and chanels.) Get over this nationalistic dogma!

        ‘the inputs and outcomes are real; the ‘theory’ is neither here nor there. I do not see anything ‘real’ in your analysis; there is only theory, or dreams.’……Aye so let’s follow that. It IS the case that Scotland voted No to indy but it OUGHT to be the case they voted Yes? Where’s the ‘real’ in that?

        ‘Ironically the only city with proven devolved power in rUK is London, and the result has been to hand power to Boris Johnson; no surprise – QED.’….and Ken Livingston???? again more lazy confirmation bias.

        ‘The city of London is out of control , has ruined us once, and will do it again. Constitutionally Britain is incapable of radically changing its constitution. These are the facts.’ …..No they really really really aren’t facts, just a selective prognosis. (please go back and re read Popper on the poverty of historicism).

        Oh and while we’re indulging in all the intellectual masterbation, there is a very real choice that will effect the lives of millions. It may not destroy the neolib consensus but to the thousands who will go hungry or end up homeless if the Tories get in it really matters.

        For your reference

        http://www.theguardian.com/society/2004/jun/10/localgovernment.localgovernment

        http://www.theguardian.com/society/2004/jun/10/localgovernment.localgovernment

        http://www.birminghampost.co.uk/news/regional-affairs/lord-heseltine-more-devolution-cities-8344696

      • Oh, dear! I therefore apologise without qualification not for impertinence, but for being patronising; that at least was certainly not my intention. I think I may reasonably infer, however that you are very annoyed, and I think it colours your argument. There, I think that is me off to rather a good start …. I feel I may now be on something of a ‘roll’.

        Clearly you have moved a long way from “I take your point” yesterday, if you recall; to a critique today in which I am “too wrapped up in contemporary partisanship and selective evidence and bad history”, through my “empty ‘impossibilist’ rhetoric” and “nationalist dogma”, to my “lazy confirmation bias”. So, I take it you are coming off the fence; I assume this is a confirmation that I was right yesterday; you didn’t actually ‘take my point’ after all? That will be a ‘No’ then?

        May I at least defend myself from some of your other criticisms? I do not claim that you, or whomsoever, cannot challenge ‘neoliberal orthodoxy’; I would merely point out that there is no politically significant, substantive challenge to neoliberal orthodoxy today in Britain anywhere, and it is certainly not to be found in the Labour Party. At the same time, I have never said or implied anything about the “centralised nation state” being the “‘Natural’ norm”; anywhere. I do not know where you found that curious proposition; could it be somewhere else? Gosh; I do not think I have a doppleganger; after your critique, who would bother? Oh, and as a matter of fact (this is a fact about me so I think it is allowed) I am not even a nationalist; and I do not think that I gave the impression that I was a nationalist anywhere either. I think you may have just decided I was a nationalist. It must be something to do with my lazy confirmation bias. I can see I should do something about that.

        You did, I think, invite me to give “answers”; which I refrained from providing. At the time, I thought I was being quite astute. It shows what I know. I made no claim to have answers, but it seems that you decided that I had provided them anyway. That’s me cooked. It is all to do with my empty impossibilist rhetoric. I must do something about that.

        I do not have a crystal ball either; nor do I claim to possess one. I am just the poor wretch who relies on evidence. You remember “evidence”? That’s the stuff which you decided is superfluous: “There doesn’t need to be any evidence”. I thought it was poor old me who needed the crystal ball? If we are wandering off down that track incidentally, could I suggest that horoscopes might work, they were highly thought of in the 17th century? Eh, maybe not. Okay, something else I must do something about.

        I am becoming a little confused by all this; especially the bit that sounded like philosophy without evidence. No, I am definitely lost. I will be deriving ‘ought’ from ‘is’ next. I think I will just go and lie down in a darkened room and hope a paradigm shift passes over me to some beneficial effect. I will just finish by saying that I am genuinely pleased to see the passion you have for philosophy (please – this is not condescension); but dare I just quickly add that I do not think Popper’s philosophy of science has stood the test of time: oops, maybe not; I think I will nip off smartly to that darkened room now ….. while the going is good! I also have a lot of doing something about something, to do. No, don’t say, It will come back to me.

      • Many apologies,but I was only responding to what you wrote, I assumed too much… ( and I do take your point clearly now, I just don’t agree with it.)

        Basically, all your saying is that in todays Britain there is no challenge to the neo liberal orthodoxy not Labour, not anywhere and there is no substantive difference between labour and Tories and that we have a very large debt problembto use the cliche is a’time bomb’? – that’s it, that the sum of an entire article?….why bother even posting it? Sorry I initially credited it wih more depth and exporation. I was mistaken.

        By the way Uk debt today is 63% of GDP as opposed to 200% in the 1950’s, – the problem isn’t debt, but type of debt and growth, the short term deficit and GDP ratio (which you fail to mention completely). There are multiple ways the current situation can be analysed (please don’t dress up opinion as fact.)

        If you don’t want to be misunderstood then try to be more factually correct….

        You wrote..

        1) ‘I would merely point out that there is no politically significant, substantive challenge to neoliberal orthodoxy today in Britain anywhere, and it is certainly not to be found in the Labour Party.’

        Nonsense.. unless your definition of Neoliberalism is different to mine. I think you are confusing it/ lumping it in with neo classical/ Liberal economics? and using the term incorrectly as catch all for all free market based economics? The nebulous populist notion of neoliberalism that seems to mean everything other than command control. Neoliberism is not the same as austerity and cutting public expenditure and having to have an unavoidable tight fiscal policy.

        Labour policy in 2015….

        e.g)

        Is banning Zero hours contracts Neoliberal?

        Or is creating europe wide social banking networks and cooperating on EU banking and competition legislation to underpin more stable long term social markets Neoliberal? – the tories of course want further dereg.

        Or for example the breaking up of banks to make them acountable and ‘not too big to fail’, or the development of a regional/ national investment bank network for long term social investment to cut out the speculative short term max profit lending for business? Neoliberal? Really?

        Or setting out an energy price freeze to try and break up the energy cartel? How is this neoliberal?

        Stopping a further cut in corp tax – Neoliberal?

        Tax breaks for employers that pay the living wage? Neoliberal?

        I could go on….

        The point is before making sweeping withering generalisations try to look at the detail. The policy agenda and party philosophy is actually quite different to New Labour…why Tony Blair has spoken out in the press recently.

        2) Forget it.You wrote…..’Newcastle, perhaps representing the most deprived, the most cheated part of England, was given an opportunity to establish an Assembly that would at least provide a focus and forum to fight its corner against the scandal that is London; the Liberal proposal after the last GE was rejected wholesale in a referendum. Whether through inertia, gullibility, despair,or worst of all, deference (who knows); nobody in rUK stands up to London. Fact. This is obvious and incontrovertible.

        It wasn’t a Liberal proposal it was actually a Wet Tory proposal in the 80’s as I pointed out. Then it was championed by Prescot in another form, then again by Lord Adonis (labour peer) and more recently again by Hesltine. Both Labour and Cons are set to devolve powers, including fiscal ones poss????

        3) ‘Constitutionally Britain is incapable of radically changing its constitution. These are the facts.’

        They are not facts, it is an opinion! so devolution never happened, EVEL isn’t happening? Anglo Irish treaty, the Indy ref had there been a Yes vote??? The Good Friday agreement was a pretty big constitutional change- no? The Greater London authority? The up comming ref on AV if Labour win??? Universal sufferage etc etc?? The removal of hereditry peers in the Lords? The European Convention on Human rights (and the Tory plan to get rid of it) The creation of a independent supreme court to replace the Privy Council??? Freedom of information act?

        None of these things are significant? And again why assume there can be no further change?

        4)You wrote

        ‘At the same time the political ‘centre’ in Britain now (excluding Scotland) is roughly mainstream-Thatcherism, as understood by Thatcher. Indeed Thatcher would never have dreamt of proposing or attempting what is now mainstream – in the Labour Party?’

        And you are not a nationalist? really? I would say it was a fair assumption given that Scotland and the SNP are exempt from this…and again where is the evidence you’re so keen on to back this assertion up?

      • Well, I am glad you have moved on from annoyance; but perhaps choosing fury as the alternative comes as a disappointment, at least to me.

        Allow me to run quickly through your four main points.

        At least we have established your fundamental position. The Labour Party has the policies and answers to everything. Why didn’t I think of that? But I think I’ll pass anyway.
        The proposals for devolution in Newcastle comprehensively rejected by the electorate were in response not just to the Liberals who sponsored the referendum, but was really the result of Labour, Conservatives (Wet) or even that new hero of the Left, Heseltine. So, it was basically a concerted Westminster Cartel effort? And it still failed badly.
        Two points. I think you are conflating devolution with fundamental constitutional change; and before you launch a tirade, I put my case on this matter on 23rd December here on Bella Caledonia: ‘On Colonialism and Lesser Britain’. I think I will let that stand as my position.
        It seems that when I say that I am not a Nationalist, according to you this is not a decision that is in my gift. It appears that you are now the final arbiter on the matter. Allow me please to be quite clear. There is nothing in what I think I quite carefully write that entails nationalism. If you do not accept this, could I suggest that you consider whether or not you have brought in some presuppositions to the application of your critical faculties. If I was to apply the kind of presuppositions that you have gratuitously applied to me, then I would say that you are an idealogue. Perhaps you are not, but in any case I am not. I am an anti-idealogue. I am as close to being a Pyrrhonist as practical reality allows.

        Should you perhaps check with Labour HQ, because I understand EVEL is not popular there (at least Gordon Brown disapproves); so you may wish to air-brush that, but what do I know? I am also glad to see that “evidence” has made something of a comeback with you overnight (hey, it is quite difficult to keep up with a fast-changing situation), but I think I will now return to my darkened room.

      • Oops! My pre-numbering failed. I really ought to stay in that darkened room! I shall try again:

        Well, I am glad you have moved on from annoyance; but perhaps choosing fury as the alternative comes as a disappointment, at least to me.

        Allow me to run quickly through your four main points.

        1) At least we have established your fundamental position. The Labour Party has the policies and answers to everything. Why didn’t I think of that? But I think I’ll pass anyway.
        2) The proposals for devolution in Newcastle comprehensively rejected by the electorate were in response not just to the Liberals who sponsored the referendum, but was really the result of Labour, Conservatives (Wet) or even that new hero of the Left, Heseltine. So, it was basically a concerted Westminster Cartel effort? And it still failed badly.
        3) Two points. I think you are conflating devolution with fundamental constitutional change; and before you launch a tirade, I put my case on this matter on 23rd December here on Bella Caledonia: ‘On Colonialism and Lesser Britain’. I think I will let that stand as my position.
        4) It seems that when I say that I am not a Nationalist, according to you this is not a decision that is in my gift. It appears that you are now the final arbiter on the matter. Allow me please to be quite clear. There is nothing in what I think I quite carefully write that entails nationalism. If you do not accept this, could I suggest that you consider whether or not you have brought in some presuppositions to the application of your critical faculties. If I was to apply the kind of presuppositions that you have gratuitously applied to me, then I would say that you are an idealogue. Perhaps you are not, but in any case I am not. I am an anti-idealogue. I am as close to being a Pyrrhonist as practical reality allows.

        Should you perhaps check with Labour HQ, because I understand EVEL is not popular there (at least Gordon Brown disapproves); so you may wish to air-brush that, but what do I know? I am also glad to see that “evidence” has made something of a comeback with you overnight (hey, it is quite difficult to keep up with a fast-changing situation), but I think I will definitely now return to my darkened room.

      • Bernicia, I can hardly write this for laughing. I just love it when you unbuckle and go off into one of your disjointed rants. Carry on!

      • Right last time to clarify/ and smugness and absoltue certainty is very worthy of ire. As is repeatedly stating ‘fact’ after assertions that are no such thing.

        I apologise for conversing on multiple levels. When you mentioned Hume (about your ‘black box’ and the theory) I assumed you were also thinking in a deeper way. On this basis I critiqued your article/ responses which repeatedly used (although not all the time fair enough) definitive terms like ‘will’ rather than ‘might’ or ‘likely’ or ‘possibly’ to make assertions about future behaviour. You also make a firm assertion to know the exact circumstances of the future/ and future behaviour based on the present and past evidence (selectively) and seem intolerant of other available evidence.

        It’s a vexed proposition, but evidence is both simultaneously necessary and utterly superfluous.

        The point is that you can construct an argument/ position in a dialectical way, a narrative that convincingly suggests a probability – but you cannot maintain absolute certainty/ nor should you dismiss other narratives that suggest other probabilities. It isn’t a zero sum game.

        e.g) This is why when Fukayma in his first article (not the book) ‘The end of History’ he added a question mark. 25 years later we now know that, although his narrative was sound and very convincing, based on solid evidence, it was utterly inadequate.

        Evidence is fine for suggesting a probable outcome, but not for asserting a ‘fact’ as you repetedly maintain…there are no immutable laws in social science/ economics. It is mostly guess work/ psychology/ shaping and influencing psychology. You cannot say for certain that into the next parliament, circumstances, ‘a black swan’ moment, to use the more contempory Nassim Taleb association, or that policy choices/ options will automatically remain as they are. (on this score you are an ideologue, not at all open. Your certainty that there is no real difference in UK Politcs is far too narrow, despite the narrative being convincing, your parameters are too constrained IMO)…given the unpredictable nature of the world and the current termoil much is very possible – e.g) who is to say the Chinese with their massive reserves won’t start buying up European debt (which they alrady are) in order to sustain their flagging export /manufacturing growth? – a broke Britain is no good for anyone. Or that the price of oil won’t slip further and totally change the debt to GDP ratio? Things that simply cannot be known and are beyond the available ‘evidence’. – any paradigm has to remain open.

        And as others pointed out FlimFlam in particular (I completely missunderstood him/ her at first but the point was a very intelligent one) that the the space you claim is so narrow is actually quite open. For example the ratio of debt held in Sterling or foreign currency. If in the former, you can simply write it off by printing more money (without excessive inflation as is the recieved wisdom). This view point is gaining traction in governments form the US to ECB, to Germany. Why not the UK?

        And finally the evidence you do use to construct your narrative on certian things is often simply wrong. The reimagining of the civic autonomy within a loser state is highly discussed…all over the world, including the the UK. Glasgow recently won a bid for 1.2 billion from the core city regions. There are multiple think tanks devising the best plan for city region devolution as we speak. – one of the reasons I voted No in the ref was that Glasgow would have been isolated from the networks it depends on in the north of England which stands the best chance of poverty irradication. The prevailing thinking is that a) social cohesion is best managed on as human a scale as possible. Simply put if you want wealth redistribution then do it on a level where people associate with one another and feel kinship. This is basic psychology. The nation (UK/ Scotland etc) is necessary at a macro level but lets face it, wealthy Aberdonians couldn’t give a fuck about someone living in Easterhouse. The ref result was telling in this regard.

        If your not a nationalist then I apologise for pidgeoning you, but from my experience of this site, your previous articles, you come across as one, and may I add without offending too much, quite dogmatic in your thoughts. The usual unreconstructed hobby horses..the British state as a Empire/ colonial narrative, Yawn. The Westminster Cartel, Yawn. It’s just a bit tiresome and not particularly interesting.

        Apolgies again for any offence but critcism is the cost of debate.

      • Apologies not required, no offence is taken. Criticism is indeed essential to debate.

        From fury to boredom; I suppose that is progress of a kind, I should probably be flattered; and indeed suddenly it is open-ness and probabilities; the sun has got its hat on. I must have been parked in a parallel universe for the last thirty years, because I haven’t seen anything like that in British politics since Margaret Thatcher came to power. I am also trying to remember where all the ‘open-ness and probabilities’ were in the Better Together campaign? No, wrong universe again.The Scottish electorate, however may well have taken a probabilistic view in producing the result; I suspect some overvalued the weighting they gave the robustness of the British state, but that will no doubt change over time; as a matter of high probability.

        Frankly I had not noticed much evidence of open-ness and probabilism in your posts; ad-hominem attacks, hectoring, constant outrage, the attempt to score points rather than engage, the gratuitous assertion of authority; but not much open-ness or probabilism. If that is what you are now proposing then that would be interesting, but you will forgive my scepticism; it is a habit.

        I wonder if this new, generous, open view of the world extends to independence, or the SNP or their supporters?

        I must also candidly admit that I find it just a little difficult to reconcile this Damascene conversion with your conventional form of debate. Of course I can be wrong; but here are a three examples that are fairly typical of your standard form of argument, as guidance on my scepticism:

        1) You wrote “I take your point” (January 7, 2015 • 01:06). I think a fair interpretation of this conventional phrase would be that you agreed with the point I had made. When reminded of this a little later your response was: “I do take your point clearly now, I just don’t agree with it” (January 8, 2015 • 01:45). I have no idea what this means. So all I can think to ask is; where did you take my point?

        2) Your answer to my claim that in something you had written, you had not offered “a scintilla of evidence” (January 7, 2015 • 03:06), came the triumphant reply “There doesn’t need to be any evidence” (January 7, 2015 • 17:19).

        3) Under pressure (perhaps to save on time, prolixity, or is it just thought?), you typically resort to sweeping appeals to big philosophical themes, but without any attempt at philosophical rigour:

        In the discussion over “evidence” above we are presumably supposed to believe that your sudden and terse reference to the proposition that “paradigms shift unexpectedly, usually out of crisis” stands as a universal proof that mere “evidence” is redundant.

        Similarly, I think we are supposed to believe that my claim that it is a ‘fact’ that “The City of London is out of control” may be summarily disabused not by an examination of the disputed ‘facts’ (such as the Vickers report), but by mere reference to Popper’s ‘The Poverty of Historicism’ (and that really is the sum and substance of the philosophical content): a work written about the Popperian concept of ‘Historicism’ relating principally to the methodology of the physical and social sciences; which somewhat unsurprisingly never mentions the City of London, or has anything to say about its regulation.

        Open-ness? Probablities? I look forward to seeing it in action.

      • mmmm, you don’t like being challenged, I guess that’s the safety of sites like Bella, everyone agrees with you.

        Haven’t had this much fun in a while!

        I’ve addressed nothing substantive in relation to Vicker’s and banking regualtion? I refer you back to the policy differences between Labour and Conservatives. The Labour proposals are quite substantive, the all important ‘ring fencing’ of the invesment and savings arm, plus measures to break the cartels, plus new ‘public investment’ only national and regional banking networks? And rules on capital holdings?

        You article ends ‘who would notice the difference?’ many who won’t loose their savings and pensions as a consequence if the invesment side of banks start arsing up again. Plus the banks who would be left to go under by the government.

        As for Popper? I guessing you haven’t actually read much/ nor critiques? The logic/ systemics he lays out could perfectly fit your analysis of the certainty of the impending Debt Bomb? – It also may not reference the ‘city of london’ directly, why would it? but it is vital in understanding risk, and the connection between thinking and reality. It’s an old philosophical tradition and one to be taken seriouly. (and if this is the sum philosophical content of the arguement perhpas that’s because it is fundamental and needs little else?)

        This is what I was referencing. You should have a read, it’s very good. (if not perfect)

        The Alchemy of Finance, Open Society: Reforming Global Capitalism, The Age of Fallibility, and The Crash of 2008 and What It Means.

        George Soros…(Or does this not have any relevance?)

        “While I was reading Popper I was also studying economic theory and I was struck by the contradiction between Popper’s emphasis on imperfect understanding and the theory of perfect competition in economics which postulated perfect knowledge. This led me to start questioning the assumptions of economic theory. These were the two major theoretical inspirations of my philosophy. It is also deeply rooted in my personal history.

        All this has changed as a result of the financial crisis of 2008. My conceptual framework enabled me both to anticipate the crisis and to deal with it when it finally struck. It has also enabled me to explain and predict events better than most others. This has changed my own evaluation and that of many others. My philosophy is no longer a personal matter; it deserves to be taken seriously as a possible contribution to our understanding of reality.”

        ‘The human uncertainty principle I am talking about is much more specific and stringent than the subjective skepticism that pervades Cartesian philosophy. It gives us objective reasons to believe that our perceptions and expectations are—or at least may be—wrong.’

        “people’s understanding is inherently imperfect because they are part of reality and a part cannot fully comprehend the whole. In calling our understanding imperfect, I mean that it is incomplete and, in ways that cannot be precisely defined, distorted.”

        Your turn…lol (cue…withering ennui!)

    • Hi again Bernica!

      Thanks very much for compliment of my analysis. I’d like to respond to your point to explain why I believe the potential for Independence to create financial market waves that might cast the (r)UK into a debt crisis is no good reason for opposing Scottish sovereignty:
      – The thrust of the original article and subsequent thread is that the UK finances are in a dangerously precarious position. To make matters worse, the two main political parties’ actions and declared policy intentions are not just failing to address matters but actually exacerbating the situation. My particular point above was that they are pursuing this suicidal course because they are ultimately doing the bidding of their paymasters in the City – they have very little option given the structure of their party finances and the UK political institutions. To a large extent the Palace of Westminster is a creation of the City of London and it knows no other way (see Scott Enger’s comment above).
      – Because of this another crash is coming, except this time it will be bigger and nastier than 2008 because the City’s criminality has gone unchecked and its continued regulatory laxity has seen Wall Street insitutions migrate much of their business to London – i.e. The Square Mile is bigger now. That means the US won’t take as hard a hit but the UK will feel the impact much more acutely. Also the UK – ultimately taxpayers – will have to dig even deeper to compensate the casino banking addicts with no hope of this or the 2008 bailout ever coming back to the Exchequer. This time some banks may actually fail, and though this may ulimately be a good thing in the short to medium term the UK economy stuffed. Public spending will be slashed to (say) pre-War levels, maybe even pre-World War One levels.
      – Meanwhile the Government will have no real option but to print money like it’s going out fashion which, in a sense, it will. Sterling’s international value will plummet. Political unrest will follow a decimated and vulnerable economy that will struggle to borrow anything because interest rates will rise and UK gilts will be devalued. Sooner or later the UK will look to the World Bank for support, and the consequences will not be pretty.

      The point is all of this and possibly worse will happen if Scotland remains. Who knows what could trigger it? Greek default, a major Eurozone recession, UK exit from the EU, another war or two, or maybe just the cumulative effect of the City’s shenanigans – who knows? Scottish independence is only one of many possible scenarios that could tip the UK into debt crisis. But whether we’re there or not… it is coming.

      So should Scotland sacrifice its opportunity to forge a new future when the best we can hope for is to prolong the UK agony? Indeed, events since last September would make it less of shock to world markets and the Bank of England, with proper contingencies actually developed this time. The currency bluff wouldn’t work again – the Yes camp (if I can call its future self that) would be far more robust in setting out the alternatives: Exclude us and we’ll set up our own; include us and we’ll help create ballast to counterbalance the bloated London beast. Financiers outwith London would get behind that too – many other economies look on at London and the UK in horror. I’d still advocate our having clearly stated contingencies to peg outwith sterling and be working towards lauching our own currency in 5-10 years.

      Also, Scotland’s managed and reasonable severance from UK political control would also help facilitate movements for substantial democratic reform to the rUK, perhaps something along the lines of a network of city assemblies you advocated before. There would never be a better opportunity. As things stand there is virtually no appetite for any such reform at present but Scotland’s independence would, I believe, give real impetus to the moribund Democratic Left in England.

      In short, the UK is unsustainable – socially, politically and financially. I suppose it’s just conceivable there might emerge a genuinely federal solution might hold it together as a longer-term entity – something truly radical, balanced and representative not Gordon Brown’s fag packet scribblings and ‘The Vow’ – but I fear the requirement for the present elites to cede so much power make this highly unlikely. Our masters are good at screwing us but are too arrogant to countenance power being given away; it has to be wrested from them. Independence is one significant way to do just that – take power, not just hope the powerful will be reasonable. While they have power they won’t. Ever.

      And if you can take all that on board, then you can understand why many, many people on the Democratic Left throughout the UK agree that, ultimately, Scottish Independence may well be the best hope for ALL the ordinary people who dwell in these islands.

      • Again, well put and I shall mull it over!

      • You have put your argument over very well and i’m in complete agreement.I have family through marraige a brother with family who all live in the south and the south west.They all live in their own bubble disconnected from the realities of their “fellow countrymen” in the north.They are mainly devoid of any idea what is going on or have any understanding of the mess the uk is really in and to be honest they probably dont really care.We are clearly not “in it together” or “pullng and sharing”we are on our own and the quicker we realise this the quicker we acheive independence.
        Sometimes after considering the arguments you then have to follow your heart and your instincts,life is also about taking risks(obviously considered ones).The time is fast approaching when we have to be brave and take control of our own destiny.(hope the spelling is ok,i have been living in France for a number of years and the spelling has deteriorated)

      • My spelling is certainly not my strong point.

    • I am only interested in the issues: period. I shall therefore put a final case to you.

      The eminent criminal and regulatory litigator David Corker wrote in 2012 about the Serious Fraud Offices’s likely problems in prosecuting matters that could arise from the LIBOR scandal (yes, that was the scandal that came before the Forex scandal and – oh, so many other financial scandals) and our appropriate expectations:

      “The SFO has a difficult task ahead in deciding whether the criminal law can be used to sanction this latest outburst of financial misconduct. The greatest deterrent is the threat of imprisonment; corporate fines may fail to offset benefits and provide a far weaker impulse to directors not to choose the opportunity to mis-sell a product or form a cartel. But criminal litigation can take years to resolve and often turns out to have a disappointing and ineffectual outcome. The SFO therefore should tread very carefully; and make sure that, before it decides to bite on LIBOR, it has the necessary sharp teeth. The truth is that the criminal law is not equipped to prosecute the conduct revealed by the LIBOR investigation and what will inevitably follow is a call for a new offence to fill the gap; thus rather belatedly shutting the stable door” (source: D Corker, New Law Journal, ‘Manipulating LIBOR….’, 27th July, 2012 ).

      “The greatest deterrent is the threat of imprisonment” should be carved in stone over the entrance to the FCA. Of course it isn’t; and there is no new offence. How many have gone to prison in the UK? I can think of one (yes, 1), off the top of my head.

      In the United States they view all such matters quite differently. People go to prison in the United States. In the US Anti-Trust Laws have always played a more prominent part in the very idea of ‘free enterprise’ (this has never been the case in Britain) and are used to curb recalcitrant behaviour; nevertheless Connor and Landes ‘Cartels as Rational Business Strategy: Crime Pays’ argue that to be fully effective, “the average level of U.S. anti-cartel sanctions should be quintupled” (source: Cardozo Law Review; 2012, Vol.38, p.428). In defence of the US, the authorities there have imposed much more severe fines than British regulators in the post-Credit Crunch debacle. Since the Credit Crunch, legal settlements in the US had totalled over $100bn by March, 2014; compare that with the FCA/FSA piffling £2.4bn (about 3% of US fines!); and before critics protest at the difference in scale between the US and UK economies, London and Wall Street are much closer together in terms of world financial-centre scale (as the City is quickest of all to claim); $3-4 trillion is constantly washing/cycling through London in the Forex market alone, and that bald fact, combined with the City’s wide claim to be the ‘world’s leading financial centre’ is part of the problem: the UK, the UK economy, and certainly the UK tax-payers, unlike the US, are already far, far out of their depth in a globalised trading world in which Gross World Product is (loosely) estimated at $87 trillion (source: WorldFactbook): especially when the UK taxpayers may find themselves left standing as the only ‘lender of last resort’ for the folly of others.

      Take one step back and look at the ‘bigger picture’ on regulators, on fines and on banks. In the US there is dissatisfaction, even with a tougher regime than is found in the UK. Anat Admati of Stanford University speaks plainly about the broader ‘fines’ issue that perhaps also echoes Connor and Landes’ tough stance:

      “The fines can be viewed as [a] ‘cost of doing business’. They don’t get at the heart of the problem, and aren’t effective to change behaviour, because the strong incentives by individuals within the banks to keep engaging in the same practices remain in place”.

      Where institutions are concerned the fines penalise investors, shareholders (including the government, where bailed-out institutions are involved, to say nothing of staff) or customers as much, or more than those who may be thought primarily or at least more directly responsible. We have, for example, seen very little attempt to require the repayment or forestalling of bonuses. We may compare the indulgent if not wanton British approach to bonuses, with William Dudley, President of the New York Federal Reserve Bank, whom, in a speech to Brooklyn College on 7th March, 2014 offered the following test of a bank having made progress in correcting industry lapses: “Not having to plead guilty to felony charges or being assessed large fines is a good start.”

      Dudley understands the investment banking world well. He was a partner and managing director at Goldman Sachs and joined the New York Federal Reserve in 2007. In his Brooklyn College speech he stressed that failure could not be explained away by glib prescriptions: “I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms”. He advocated a long-term deferred debt bonus scheme to prevent the pernicious effects on the industry of large cash bonuses. “Assume instead that a sizeable portion of the fine is now paid for out of the firm’s deferred debt compensation, with only the remaining balance paid for by shareholders”. In the event of a fine by regulators, “senior management and the material risk-takers would forfeit their performance bond”.

      Dudley describes a much tougher, less forgiving perspective in New York than obtains in London. Much is made of ‘time-zones’ to explain the success of the City of London; but this ‘success’ is also explained by its historic lax regulation, conveniently byzantine tax system manipulated by skilled tax-consultants, the largest portfolio of tax-haven dependencies in the whole world, and a very louche culture sold to the world as ‘open-for-business’.

      Take this anonymous but candid view of London as it was immediately before the Crash, which was provided on WallStreetOasis.com (posted 13th October, 2014) by an American attracted to work in the City, 2004-8 because of contemporary US impositions on doing business which:

      “turned off my firm at the time’s desire to do anything in the US public markets because it seemed like they wanted too many people involved in it to sign their lives away if some junior accountant or auditor flubbed a number the CFO was going to prison so there was very little market for IPO’s on the smaller side. London kept its rules relaxed and the AIM market at the time (I work in lower to middle market PE type of stuff) was exploding and we were investing, putting some lipstick on the pig and making exits in no time on AIM.”

      I will not waste my time discussing the failure of Vickers, you already have all the answers; you just do not seem able to articulate a convincing case. Most remarkable of all after the worst crash since 1929; there are still siren voices of neo-conservatism who believe that the greatest problem facing business in Britain is over-regulation. I do not exclude the Labour Party from that criticism; talk, as they say is cheap and with regard to the City the Labour Party – and its apologists – has always talked big and walked small. It still does. Your list of ‘solutions’ is risible.

      Fin. Switch off the lights on your way out of this thread.

      • Click…into darkness…what’s Neo Conservatism got to do with it? And what IS the alternative then? An independent Scotland…equally as risible?

      • The doorbell rings. Who can it be? Delivery for Bernicia! A Cap and Bells. High-quality, long-lasting.

      • Bernicia

        “…what’s Neo Conservatism got to do with it?”

        A Labour party which refuses to undo the Coalition’s accelerated marketisation and privatisation of the NHS, a process which was started by Labour. A Labour party which has no meaningful response to inequality; inequality which grew during its last period in government. A Labour party which is committed to cutting public spending by just as much as the Conservatives.

        They claim they’ll be nicer about it, and they’ll tinker around the edges with other policies, but by buying into neoliberal myths – whether they believe them or not – about the efficiency of markets, the creation of money, and the ‘danger’ of deficits they continue to head in the wrong direction right from the outset.

        “And what IS the alternative then?”

        A political party and movement which understands and articulates the real capacities and constraints that modern states operate within, and which works within them to support and enhance the fundamental well-being of all its citizens. This simply does not describe the Labour party, nor any other party operating in Britain.

        “An independent Scotland…equally as risible?”

        Independence at least held the realistic possibility of change for the better. The public engagement needed to peacefully reshape the political system was being generated by the independence discussion, but clearly it turned out to be neither wide nor deep enough. Whatever that possibility was though it was not risible.

  31. Reblogged this on My Little Underground and commented:
    This week saw the launch of all the parties campaigns for the general election in May and the paucity of intelligent debate is overwhelming as Tory and Labour argue endlessly about the deficit, debt and who exactly can be ‘tougher’ on the economy than the other.

    Frankly it shows just how similar both parties are that £20 billion worth of spending is being treated as some sort of massive turning point for a campaign that’s still got months to run.

    For most of us we’re just getting back to work after the Christmas and New Year break so much of this is already tiresome for a lot of us, but it’s worth shaking out the cobwebs and read this article from Bella Caledonia as it says what many of us know about both parties, and the fact these arguments about debt hide a number of lies from both parties.

  32. I made a contribution earlier about wealth really having its source in the earth, the planet we live on. I got interrupted and didn’t manage to finish the point but now I can come back in.
    I would like to see an Economics that is more tied to Ecology and resources, that is more grounded, and more comprehensible to the layman. I would also like to see an Economics that acknowledges the consequences and side effects of the last 200 hundred years of exponential growth ie. pollution, over population, austerity. FlimFlam is right to mention ‘constraints’ and environmental wreckage. The wreckage continues apace – it is in fact an emergency. We are currently emitting 6 Hiroshima bombs worth of heat energy into the atmosphere every second, we have passed the 400ppm CO2 level, and the polar ice caps are melting at a rate of 500 cubic kilometres each year. We are heading very rapidly towards complete environmental collapse. This won’t just ‘constrain’ growth, consumption and debt it will bring them to a violent halt. The default to end all defaults.
    With humanity back in the Stone Age we’ll have a whole new perspective on wealth and, if I’m around, I suppose I’ll have the Economics I’m looking for.

  33. Now I must away and read Minsky!

  34. Blimey – what a brilliant set of discussions, esp the FFM and JSW exchanges – I particularly loved FFM’s:

    “I’ll warn you right now that what I’m about to type will be wrong. It’ll be less wrong than the usual neoliberal tosh though.”

    They tell us of those moments and places in history where ideas were struggled with and new thinking, new understandings of who we are and how the world could be, emerged. This is so clearly one of those moments and one of those places. Through the extraordinarily ordinary of questioning, or relationship and of daring to take action, we remake the world.

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