Would an independent Scotland have a viable economy?

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by Alex Porter

Common sense tells you yes but my point is that the question doesn’t really matter anymore. A seismic shift in the debate over the economics of independence took place recently and has largely gone unnoticed: The realisation that Britain is bankrupt and thanks to Gordon Brown, beyond repair.

by Alex Porter

Common sense tells you yes but my point is that the question doesn’t really matter anymore. A seismic shift in the debate over the economics of independence took place recently and has largely gone unnoticed: The realisation that Britain is bankrupt and thanks to Gordon Brown, beyond repair.

Up till about a year ago a sterile game of ping pong went on about the viability of an independent Scotland. The debate over Scotland’s future was what the SNP’s Calum Cashley called “little more than a car boot sale haggling session”. Unionism revelled in it though. It was in a comfortable position as they had successfully framed the debate in such a way as to have nationalists provide evidence about an economy that didn’t exist. The eyes of the onlooking public glazed over. Independence was boring and hypothetical. And the Labour Party hammered home the advantage claiming that Scots wanted politicians to talk about the economy and jobs, not an abstract debate on the constitution.

Even the SNP put the issue of independence on the back-burner. Alex Salmond can talk Scotland up but the winds were blowing against him on independence. Instead the SNP concentrated on devolution management. He has stuck to that script and done a decent job of it too.

While Alex was holed up in Holyrood though, the debate had moved on. The crisis arrived.

Unionism started to sound a little uncomfortable. The umbrella of union was sheltering Scotland from the worst of a global recession went the spin. Salmond’s ‘Arc of Prosperity’ – the models of Iceland, Ireland and Norway were scoffed at by former Secretary of State for Scotland Jim Murphy MP who took great delight in dubbing them ‘The Arc of Insolvency’. Labour’s guffaws showed that unionists were struggling through but were becoming nervous.

Gordon Brown pursued fiscal ‘stimulus’ agressively. The PM, who as Chancellor built his reputation – dubiously – as being prudent was spending like a drunken sailor. He was convincing though and in a crisis people want leadership. The media coverage of the crisis was not about whether or not ‘stimulus’ was a sound strategy but about how much and how soon Britain needed it.

‘Stimulus’ failed.

It had to. The reason only a few predicted it would fail was the same reason why very few predicted the crisis in the first place. Modern economics is complete nonsense.

The idea that as long as people are spending money the economy will be fine is just wrong but it’s a popular misconception. Politicians will simply borrow more money. They add that debt to the GDP figures and hey presto, people are shopping and politicians get to spend money on all causes. Low interest rates meant people could borrow money easily and they did. Under Gordon Brown, Britons racked up more household debt than the rest of the EU combined. The problem is that when you borrow money you need to have some kind of security to borrow against – your house for example. What happens when everyone has borrowed all they can and have no security left? No-one lends to you.

Credit is no longer available. Debt has reached the point of saturation and that’s your crisis.

If you understood that you understood why ‘stimulus’ was crazy. How can the answer to too much debt be borrowing more money to spend? It isn’t. That’s the big hole in modern economic theology: Debt is not the same as savings! In economics ‘savings’ in an economy is producing more than you consume. For corporate economists, bankers, politicians and just about everybody else sound economics was about consuming more than you produce. Let’s have a party on the credit card then and no-one wants to be a party pooper and who listens to party poopers anyway?

It’s pay back time.

Debt reached saturation point many years ago. With the theology of modern economics being what it is though, a crisis of credit is a political nightmare. So, what did Gordon Brown do? He let the financial markets have more security to lend against. How? Fraud.

Those clever bankers in The City created financial products called derivatives. A derivative is a product that has assets and the banks buy and sell them based on how well the assets perform. The problem was that there were no assets. Yet The City of London and Wall St. sold them around the world. That’s why the crisis was global.

Now you get to see the price tag: £500 Trillion. That’s how much the fraudulant derivative market was worth and yet global GDP is only around £45 Trillion. And if that doesn’t shock you, take this in; Britain was and is the main global centre for the derivatives market. The City was a staggering economic collosus. Britain’s GDP went through the roof. Tax revenues from the financial sector were enourmous. British banks bought and sold thin air. Gordon Brown was an economic genius, bankers drew down huge salaries and bonuses and shareholders were ecstatic.

With all the fraudulant money in the system house prices went up and up. Gordon moved the tax burden from property to labour and industry. The latter became less competative as a consequence and the manufacturing jobs went abroad. Who cares if you have a horrible job in the service sector and low wages as long as your house price goes up? You can always refinance and put the kids through university that way, right?

Wrong. The scam blew up in the fraudsters’ faces. Banks knew that they were selling nothing to each other and distrust set in. They had been buying and selling nothing to each other for so long that they knew they owned nothing but debt.

The banks were bankrupt and so was Britain.

The collapse of the financial system was not going to be blamed on Gordon Brown. Oh no. He changed the accountancy rules so that they could pretend to be solvent. He bailed out the insolvent banks with taxpayers money and lots of it. Britain’s share of the derivative debt is around £200 Trillion. That’s not a hole that can be filled with a few billion here and there. Then Brown and Mervyn King at the Bank of England started printing new money and again, lot’s of it. They got the money for almost 0% interest i.e. free. A bit irritating if you have a credit card and pay the bank 40% on it.

The hole will never be filled. Unless that is if the banks start selling fraudulant derivatives again and they have. Using free money which has diluted the wealth of the citizens and when that runs out they’ll be back for another bailout. The free money meant the value of the pound dropped 20% in the last year meaning a 20% wage cut for all and a 20% hit on your property and assets. It’s fraud. Legalised fraud but it’s fraud.

The point though is that the banks will not lend. Why bother? They can buy and sell nothing to each other using taxpayers’ money and pay themselves mighty christmas bonuses. And they can’t lend because they’re broke and no-one can borrow anyway.

So the real economy dies. Credit starved business are going to the wall. unemployment is rising and the government’s tax take gets smaller and smaller.

For Scottish unionism, the myth of prosperity emanating from The City was a powerful weapon against Scottish independence. The proceeds from North Sea oil money didn’t even cover Scotland’s public spending needs. What would Scots do without London heroicly subsidising we benefit junky jocks?

But the truth is out. Britain is bankrupt and The City is not the massive economic wealth generator that Scottish unionists liked it to be. Infact, it was a parasite sucking in the wealth from outwith the centre.

In a state of shock unionists scrambled around for comfort. RBS and HBOS were Scottish and needed a large chunk of the bailing out. How could an independent Scotland afford to bail their banks out? The answer is clear. If you don’t do your sums and you make a bad investment you lose, right? So, why on earth did the taxpayer bail out the shareholders and bondholders? They should have lost their money. That aside, these investors were mostly institutional investors and based mostly in London. That’s why they were bailed out.

So, where does this leave Britain PLC?

With government revenue collapsing the government needs to borrow more and more money to balance the books. With public and private debt standing at £1.7 Trillion and with the collapsing value of the pound who in their right mind would lend to Britain? America has the same problem and so both countries are printing money and buying each others’ debts. And their currencies plunge deeper.

The only way out of the hole is to declare bankruptcy. Those who lent Britain the money will get some of it back but you clear the debts and start over. That’s not going to happen. The banks want their money and they run the show, alter all.

So, the answer? Apparently it’s to be ‘austerity’.

The standard of life of Britons is about to nosedive. The banks’ debts will be hung around the citizens’ necks for generations. Public services will be unrecognisable from what they are today. The free health service will be gone, higher education will be massively scaled down as no-one will borrow for courses when there’s no high paying jobs to graduate into.

Britain’s status in the world is fast evaporating. Trident is being postponed. Britain will not be in the G20 never mind the G8 and the wars are financially unsustainable.

And so the debate over Scottish independence transcends from hypothetical to economic and social.

With Britain unable to offer jobs, health and education, Scots will be open to listening to another pitch. Alex Salmond smelled the coffee and is placing independence at the centre of the Holyrood election campaign. That campaign will not be a dry campaign about whether or not Scotland is a viable proposition but whether anyone in their right mind wants to go down with the Titanic.

With a Tory government introducing cuts galore, Labour and the SNP will be posturing as the defender of Scots from ruthless Tories. The problem for Labour is that the SNP can point to the fact that Labour bankrupted Britain in the first place and anyway, no matter if Labour gets back in, they can do nothing to alter the fact that Britain’s economy is fundamentally broken and social disintegration beckons.

And things really are going to get a whole lot worse. ‘Austerity’ will mean less jobs in the public sector and less benefits. Civil servants have mortgages and they pay taxes. People on benefits spend their money in shops which means jobs and VAT payments. Unemployment is going to increase massively and the tax base will shrink even more. Poverty will increase rapidly and more people will have even more debt that they borrowed simply to eat.

That is the Britain that Scottish unionists must defend. Corrupt, debt-saturated, diminishing in status, collapsing social structure and getting worse.

Would it not be a historic irony that a financial crisis got Scotland into union with England and a financial crisis will get her out of it?

So, the crisis was not really financial but it was all about an economic theology. It was a blind belief that you can spend your way to prosperity. Debt is not the same as savings. With savings you can invest in manufacturing and start making things, stop importing so much and sell things abroad then with the profits, pay off the debt. The manufacturing jobs are gone – lost because we preferred consuming to producing. To bring back savings you have to increase interest rates but the population and the government have so much debt that the interest payments would be astronomical. Britain is over.

Going back to the original question then; will an independent Scotland have a viable economy? The answer is simple: Who cares? What choice do we have?