teamhurtmore – Member

Among the main holders of Scoltand’s debt would be scottish banks who need a lender of last resort. Who will that be? And does it come with wee eck’s notion of a free lunch? No

There seems to be an assumption here that the Bank of England simply becomes an RUK institution. What’s the rationale for that? Presumably a proportion of the BoE asset belongs to Scotland. That’s the difference between THM’s “free lunch” and picking up the lunch you’ve already paid for.

The BOE assets include £375billion in UK Treasury bonds of which a portion would then transfer to iScotland.

Hmm. So, just speculating but what’s the issue here? Either we leave our portion in the control of the BoE, and as a result can expect their support as a partner, or we take our portion and set up a National Bank of Scotland to do the same job (not to be confused, etc). Obviously there’s a question of liabilities- whether our share covers our risk, or not.

Failing to see the free lunch here, or the reason why we’d have to accept being dictated to.

Yep – in either case, iScotland would be a creditor of the UK Government.

The choice if currency system has fundamental implications for a country’s level of economic independence…May I also suggest (in the spirit of the conversation tone!) that you are mixing independence with ability to defend against speculation.

The second proves the futility of the first for a small country. Having a central bank and currency doesn’t make you independent or a sovereign state. They’re just baubles if they’re not back by sufficient wealth and influence to actually achieve something – like fighting off speculators. The bad news is that Scotland is never going to be able to outspend global markets. The good news is that that doesn’t matter because everyone else (with the possible exception of china and the USA) is in the same boat.

The banks will, hold large amounts of domestic debt to meet liquidity rules.

Why? Says who? What’s so special about Scottish government bonds?

1. Basics of financial regulation (google Basle 111) edit, no need, you clearly understand this.

2. Basle Ctte and international regulators including BoE and possibly a new Scottish Monetary Authority

3. Nothing – that’s the point. Like any other bond they have an element of credit risk attached to them. Hence the lender of last resort (which AS assumes will be the BoE) will be taking on Scotland’s credit risk. This may be better or worse that the credit risk of rUK (ST worse as a new county, but who knows over time). but either way a LoLR will not take a naked risk here. To fulfill this function they will need to have some say in Scotland’s policy mix. Its very simple – there’s a nice simple chart in the Scottish Analysis section of the government web site which makes this clear. See link below.

Like AS, others may try to muddy this issue with comment about my free lunch point. To be clear, in my case, the free lunch refers to the idea that you can delegate the role of LoLR but still maintain full policy independence. That is a fallcy.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/191784/Scotland_currency_IG.pdf

On the first point, they do actually. Its how you use that policy independence that determines whether your currency is vulnerable or not. Contrary to public opinion, speculators dont attack currencies without reason or without fundamentals to justify their actions. To do so, would mean getting burnt and most are not that stupid.

Scotland has several choices to make re its preferred current arrangement. I would expect (in the event of a yes vote, however unlikely that may seem now) that this would be a staged process. That is all clear. What you cannot do in the interim is to simply mis-state the situation merely to suit your own agenda which is exactly what the book of dreams does.

Where’s the requirement under Basle for banks to hold domestic debt? The assignment of domestic debt a 100% liquidity ratio is a free lunch – it’s a failure to assign a proper risk discount on the value of potentially risky assets.

You’re back to being the Chairman of the Macedonian Central Bank encouraging Maso banks to invest in dinar denominated bonds.

Sorry, I am not clever enough to understand that. Prefer to keep it simple.

Scottish banks will hold Scottish debt (among other instruments). The BOE will (probably) be LoLR, ergo, policy cannot be “independent” despite protestations otherwise. Refer to the chart in the link.

I am glad we have moved away from an economy with a high exposure to financial services surviving without a LOLR. That is some progress!

Where’s the requirement under Basle for banks to hold domestic debt? The assignment of domestic debt a 100% liquidity ratio is a free lunch – it’s a failure to assign a proper risk discount on the value of potentially risky assets.

You’re back to being the Chairman of the Macedonian Central Bank encouraging Maso banks to invest in dinar denominated bonds.

That’s quite funny. Given your obvious knowledge in this area, you will be well aware of what has been happening across European banking in this respect clearly (the hidden circle of financial deceit) And not just in Macedonia!

So…we’re agreed, then?

No I just can’t be arsed with tangential debates.

It’s very clear, well documents and thoroughly researched. Unfortunately the conclusions do not suit wee eck’s agenda, so the tangetial BS will continue over the next few months. Meanwhile the RoW, including rUK and Europe will get on with their lives leaving AS to live in la, la land. We could ignore him too but for the fact that his BS unsettles markets resulting in the need for the Treasury statement this week.

Responsible, moi?!?!?