Osbourne says no to currency union.

I’d be very surprised if Alex Salmond has not already discussed the “default” position with potentail sources of finance. He’s a man who is expert at getting all his ducks in a row.

That he is so blase about it suggests he already knows what the answer of the big financiers will be.

Alex Salmond spent a few days working as an economist once:

[/quote]In 1978 he joined the Government Economic Service as an Assistant Economist in the Department of Agriculture and Fisheries for Scotland. In 1980 he joined the Royal Bank of Scotland where he worked for seven years: first as an Assistant Economist before being appointed Oil Economist in 1982, and from 1984 combining that role with duties as a bank economist. He has also been a visiting professor of economics at Strathclyde University.

He can’t possibly know anything whatsoever about economics though can he. Or indeed political and economic interactions.

That’s a shite argument and probably incorrect

I’d get reading your economic textbooks 😉

If theres a Currency Union whos going to set interest rate?
The BoE, and they’ll be set on a London bias, reguadless of if thats right thing for Scotland or not. That may be the same as now, but as you’ll know Monetary and Fiscal policy need to be linked to simulate growth and control inflation, so the BoE will be controlling that for Scotland as well.

For a Currency Union to work, the BoE would be controlling both Monetary and Fiscal policy for Scotland. Thats not really independence is it?

Same thing for joining the Euro and we all know how thats working for the smaller countries of the union.

Ah, you’re going for THM’s argument that European countries aren’t really independent. Which is nonsense.

Ok, in reponse to the polite edits (liar and not answering the question)

There are in fact several ways a technical default could happen. The first is the option one above ie transferring an proportion of the existing debt to a new borrower (in this case iS). The Scottish government’s text acknowledges this in the bit about legality. In short, you cannot separate debt in this manner. This would be a technical default but in this case by HMT (the issuer or the debt management office). Hence the need for clarification in Feb when HMT made it very clear that it would take full responsibility for the actual outstanding debt. The idea of this being split or not be paid by iS was spooking investors at the time. Nice responsible behaviour from the First Minister.

Ok, so as you cannot physically spilt the debt you need an alternative method of allocating the liabilities. Some of the detail and methods you have quoted above. Put simply, Scotland would make financial compensation to the rUK in a manner that either mirrors the maturity of the outstanding debt or more dramatically but less likely (due to the cost) a one-off big break payment.

In practice what would happen would be a form of loan between the two parties. Now if an iS failed to make payments on this then in effect it would be defaulting on the original debt but in an indirect manner. Hence it is referred to as technically rather than actually defaulting on the outstanding current debt. In practice again (and in the eyes of the investors) it is the same thing.

But Salmond’s BS aside (1) an iS would never walk away from it’s financial obligations that would be economic and financial suicide and (2) in talk of assets don’t forget that currency is NOT an asset. Look which side of the central bank balance sheet it is recorded on. The same as the debt. A little clue there.

And again, where is sterlingisation on the Scottish Government’s nice little picture. Why is it missing? Did someone forget to brief alex properly?

I’m no economist, and I might be wrong, but surely interest rate setting is monetary policy, no?

Not denying that monetary and fiscal policy need to be linked, but there are lots of things that are linked which are independently controllable by different people.

Can you explain in simple terms why and indeed how we would need to have our monetary and fiscal policy controlled by the BofE?

Ben, watch this space. No control over their monetary policies, unelected bureaucrats placed into positions of power, fiscal constraints determined by others and in the meantime a catastrophic impact on youth employment. Which bit of not having independence do you not get.

Just watch Italy and google past week for number of references on the need to re-interdict the lira. The debt dynamics in Italy a screwed and everyone knows it. We are just delaying the inevitable.

So, THM to make this clear I’ll ask you a couple of deliberately closed questions- are you saying that it would be the rUK that would be defaulting on its debt rather than Scotland?

Also, you say that currency is not an asset, that’s fair enough it’s a reasonable position to take and makes sense. However, would the Bank of England count as an asset?

Edit: Italy and Scotland aren’t really all that similar but just to allow you to make your point clearer – can you tell me in what ways Scotland and Italy are similar and different from political and economic perspectives please?

Because current unions require integration of monetary policy AND fiscal policy. The euro doesn’t work partly because the latter is missing and for the obvious reason that EU is not an optimum currency union (google that too).

The fundamental lesson of the Euro is the need to integrate fiscal policy too – but guess what, nations dodnt like doing that do they! Go and read the FT’s editorial today. Towards the end, it makes this same point very clearly.

Ah, you’re going for THM’s argument that European countries aren’t really independent. Which is nonsense.

Anyone who is in Europe isnt really independent.
The way Europe’s going is more towards centralisation. You’d have Brussels telling you what to do instead of Westminster.
Ireland cant do what it wants as to stay in the Euro it has to follow what the European Central Bank says, which lets face it is looking after Germany first.
Theres the big unknown question of the EU position. I cant see Spain supporting auto entry as for the precedent it sets for Catalan.

Ah, you’re going for THM’s argument that European countries aren’t really independent. Which is nonsense.

You might want to take a look at whats just happened within the French Government…

Because current unions require integration of monetary policy AND fiscal policy. The euro doesn’t work partly because the latter is missing and for the obvious reason that EU is not an optimum currency union

Is that statement strictly true, given that you’ve immediately contradicted yourself and given an example to prove disprove your first sentence?

Oops I should not have mentions the first default. But tbc, there are two possible defaults. Both technical. If the debt was split and some given to rUK and some to iS then that would constitute a technical default. This is the legality stuff mentioned above – but just ignore this as it’s technical and not what people are really talking about (although it is important). Legally, in this case the issue (DMO on behalf of HMT) would be defaulting.

If Scotland chose not to make the financial compensation that overcomes this type of default (sorry) then that too would constitute a default albeit another technical one. In practice it would be a default on a loan (but we are really getting into nitty gritty now) but in the eyes of the investor it’s the same thing. When I have been talking about a Scottish technical default, it is this (and other slight variations) that I am referring to – not the first paragraph.

The BOE is not an asset. The things on the asset side of the balance sheet are eg, reserves etc. A currency is not an asset either. In essence it is neither but when issued it becomes a liability. But the talk of currency = assets is a deliberate smokescreen that the DO has used to good effect. Successful political rhetoric but still a blatant lie.

Can you explain in simple terms why and indeed how we would need to have our monetary and fiscal policy controlled by the BofE?

Both control the supply of money. ie. The amount of cash you have in your pocket.

If i want to boost the economy i’d reduce Interest rates to give you more money to spend on stuff (creating jobs) (Monetary), i’d reduce Taxes so you have more money to buy stuff (creating jobs)(Fiscal) and i’d spend money on Government projects (creating jobs)(Fiscal).

If the economy as growing too fast and inflation was out of control i’d do the opposite.

Thats why Monetary and Fiscal policy need to be aligned as if they were separate you really would be in a mess 😉

The BoE is always going to control Monetary policy and heavily advise the Treasury around Fiscal policy.

Ooh, do rUK get to keep RBS then? Actually, you can have it ;))

Is that statement strictly true,

Yes. If you don’t believe me, read what the Governor of the BOE says in testimony. He tends to tell it straight under such circumstances.

(Appreciate the edit BTW!)

Is that statement strictly true, given that you’ve immediately contradicted yourself and given an example to prove disprove your first sentence?

Ask Greece, Ireland, Italy……

.You might want to take a look at whats just happened within the French Government…

So in that case, was it Brussels which made the French government dissolve? No, it was forced by the people of France. That’s a perfect example of independence, the people of a country telling the government what to do.

Every country in the world (with the possible exception of North Korea) gives up some manoeuvring room by signing up to treaties and conventions with other countries. That’s completely normal. What makes countries independent is that they can decide to enter or leave these agreements.

If Scotland chose not to make the financial compensation that overcomes this type of default (sorry) then that too would constitute a default albeit another technical one. In practice it would be a default on a loan (but we are really getting into nitty gritty now) but in the eyes of the investor it’s the same thing. When I have been talking about a Scottish technical default, it is this (and other slight variations) that I am referring to – not the first paragraph.

I’m not seeing how that can be a default: if the newly-created Scotland had never agreed to take on that debt in the first place, it’s not failing to meet it’s obligations.

Or is becoming independent an implicit agreement to take on the debt?

If the debt was split and some given to rUK and some to iS then that would constitute a technical default.

But you’ve said that the debt can’t be split, so that’s not going to happen.

If Scotland chose not to make the financial compensation that overcomes this type of default (sorry) then that too would constitute a default albeit another technical one.

Scotland wouldn’t dream of defaulting on an agreed financial compensation, so that’s not going to happen either.

The BOE is not an asset.

Asset definition: a useful or valuable thing or person. Not too sure that the BofE would agree that they were not valuable. But I can see your point.

The BoE is always going to control Monetary policy and heavily advise the Treasury around Fiscal policy.

There is a massive difference between advising and controlling. I advise my patients to do all sorts of things, but I cannot control what they do – it’s a consent thing….

Ooh, do rUK get to keep RBS then? Actually, you can have it ;))

It employs most of its workforce and does most of its business in London, so it can’t stay here apparently – good luck. 😉

Right – I need to go and collect my bike from the train station. I’ll be back in a bit.

On (1) exactly, my point all along. It cannot actually be split. Therefore non-payment by iS has to be a technical rather than an absolute default. But you are correct, the debt cannot actually be spilt. Scotland makes a financial compensation instead. It’s all there in the small print.

On (2) that is exactly what is being threatened because of (1). As you said, AS is an economist (we had the same teachers) so he knows this just as I do. But again you are correct. It will not happen. Even he is not that stupid. It is just deceit to fool yS voters and it is working a treat. But it remains a lie.

Glad the asset points are sinking in!!!!!

There is a massive difference between advising and controlling. I advise my patients to do all sorts of things, but I cannot control what they do – it’s a consent thing….

Yes, but i bet those patients who do what you advise them do a lot better than the ones who dont.

Therefore non-payment by iS has to be a technical rather than an absolute default.

Why would Scotland be paying for a debt for which it is not liable? You’ve already said that it cannot be split – are you suggesting that Scotland takes on all UK debt? 😀 I cannot for the life of me see how Scotland could default on a debt which it is not liable for. I can however easily see how rUK could technically default on a debt if it tried to split it though. Is that the bit that you are afraid of? rUK trying to split the debt and technically defaulting because of that? Or is it more that you think Scotland might not be good for paying it’s compensation?

There is one way to avoid both of those: Westminster to stop talking bollocks and stop playing politics.

There is no way on this earth that Westminster would be stupid enough to not agree to a currency union. If it doesn’t agree, it removes a willing source of income for a fair sized percentage of it – political suicide. I can see why trying to scare people into voting no based on the threat of “defaulting on a debt” might work and could be a useful political tool – it’s a bit dishonest though as Scotland cant default – it’s the rUK that can default.

I have to say I admire the political thought process that has gone into getting that slight of hand trick to go on for as long as it has. I think you have personally played a blinder by getting people to think that you were implying that it was Scotland who would be defaulting when all along you’ve tried to stay away from stating that, and only now do you say that it’s rUK who would default. Good work.

It has been a pleasure discussing the matter with you. It has certainly cleared up a few outstanding queries that I had – thanks. 😉

By S

The UK will not default, it has made its responsibilities clear. If only AS would do the same instead of being irresponsible. And this is the kind of guy you want running an iS. Already threatening a default. Amazing!

Jesus H Christ – defaulting on what?

Yes, but i bet those patients who do what you advise them do a lot better than the ones who dont.

No, not at all. The ones that don’t do what I advise them tend to be self motivated, listen to their own body and go back to their own way of doing things really quickly – they seldom have problems that they need to come back and see me for.

Well your side disagree with you. They know they have to make a compensation for the benefits received. The only debate is the timing and the method. Currency has nothing to do with it. It is a smokescreen.

Scotland can technically default and in the eyes of the market this is clear. AS can fool the electorate but he won’t fool the people who will be leading him the money, They understand this stuff.

Sorry that you are still failing to understand. I must have explained it badly. 17-18 year old students get it though. – it’s not that hard.

it has certainly cleared up a few outstanding queries…

If only! There is only one slight of hand here and that belongs unsurprisingly to the fIrst minister. Heaven forbid he is let loose on the wider world.

Please go and read what the fiscal commision says – there is no argument that an iS will “service a fair and equatable share” of the debt that currently exists. It’s merely the timing and the means that need to be discussed.

They know they have to make a compensation for the benefits received.

Nobody is disputing that. The only thing in dispute is what benefits will be received, if any. That is pretty sensible. Doesn’t need to be debated any further.

Ok – I’ll try asking you the same question in a different way.

How can Scotland default on a debt which a foreign country is solely liable for?

How many times can that question be answered without any resulting comprehension?
I get it, and I’m just a bloody machinist.

By failing to (in the FS own words) service its fair share. Just because it cannot be spilt does not mean that there is no liability.

Anyway, it will leave it there because you must be simply taking the piss now.

P.s. Its past benefits not just future ones.

there is no argument that an iS will “service a fair and equatable share” of the debt that currently exists.

Correct. It’s the fair and equitable bit that is important. Taking on liabilities without assets is neither fair nor equitable. Nobody is disputing the fact that Scotland will take on a fair and equitable share. What is being stated quite clearly on many occasions is that Scotland will not be taking on an unfair and inequitable share of the pot – we wouldn’t expect rUK to do that either.

muddydwarf – you explain it to me then.

Wanman – THM has explained it in simple terms several times, if you can’t grasp the salient points when an economist lays them out then why do you think anyone else can ram it home?

The term ‘technical default’ is simply a device by which the market understands that a Country has made itself a high risk, poor market for investment & that those financial markets will reflect that view of the Country.
Whilst the Country may not have actually welched on a debt, it is seen to have gone back on its agreement to service a financial obligation & therefore investors will be extremely wary of investing in that Country.

That’s what i have taken from THM’s answers, i cannot see why you would not be able to grasp the same.

I know fine well what a technical default is – thanks for repeating that.

The bit that I do not get is how can a country default on a debt that it is not liable for? rUK has after all said that it would be liable for all UK debts post independence. Can you explain that point specifically, because nobody else appears to be able to do so.

Wanman, you are obviously not going to believe us. Go and read what the FC says, it’s broadly the same thing (albeit it with a slight spin). You know where to find it, just read it instead of blindly posting it. It really is not that difficult to understand – unless you spend too much time listening to the Deceitful One. Admittedly he makes it (deliberately) very confusing.

It’s a simple enough question that I’m asking.

I’ll change it again to make it simpler if you want. Say I live with my mother, she takes out a loan in her name only and gives some of the money to me with the expectation from her that I will contribute to it, I then move out she sells all my stuff, so I stop giving her any money – can I be in a technical default on the loan she took out? If so, how?

Yeah, but you’re **** when you try and join the social club and she gets to veto your membership 😆

Because, saying ‘if you don’t give us a currency union then we’ll refuse to pay the part of the National Debt we incurred’ will be seen as a technical default by the markets, that’s not a healthy position for a newly-minted Nation to be in.
Scotland may not have inherited an actual, physical debt, but by refusing to contribute to the debt of the rUK it will be seen by investors to be untrustworthy. THAT is the problem, call it a technical default, call it untrustworthy, call it whatever you like but the end result will be a very painful emergence into the Capital markets for such a Country.
You know this very well, you are just being deliberately obtuse.

Two neighbours want to buy a flash car and are with the intention of sharing it on a 90/10 basis.

They can’t afford to buy outright so take out a 100% loan in the 90% partners name because they’re such good mates, and don’t expect anything to get in the way of that friendship for the length of the loan. They pay their respective share each month, the bank is happy, they play with their car and all is well in the world. 🙂

They have a bit of a tiff and the 10% guy runs off with 10% of the car and refuses to meet the remainder of his obliged payments. The 90% partner can scrape together the cash to replace the missing bits and pay all the loan on his own. The loan doesn’t default.

Unfortunately the bank manager lives next door and can see all this playing out, and Mr 10% needs a huge loan to pay for the big extension he’s promised his wife and kids.

Mr bank manager places a very high value on people fulfilling their obligations no matter if technical or otherwise, so tells Mr 10% he can either **** off or pay an eye watering amount of interest on the money.

Mr 10% has now made his life very difficult and his wife and kids pay the price.

Mr 90% would have been happy for Mr 10% to keep the parts and pay the outstanding portion of the 10% as a lump sum or monthly, Mr 10% would be looked at much for favourably by the bank manager to get a better rate on his loan.

Pretty simple I thought! It’s not so much the point of paying the loan that’s the issue, its that the bank manager can see you’re being an arse about it and will make getting credit that you must have more expensive.