Journey to Yes: Economist Richard Murphy on the case for Scottish independence

Phantom Power Films speaks to Richard Murphy about Scotland's economic future.

IN a special extended episode of Journey to Yes, Phantom Power Films speaks to economist Richard Murphy about why he believes Scottish independence is now the only way for Scotland to reach its potential.

Murphy is a political economist, author, chartered accountant and one of the world's leading thinkers on tax and how it can change society. He advises the Trades Union Congress on economics and taxation, and is a long-standing member of the Tax Justice Network. He is also a professor of practice in international political economy at City University, London.

Just 10 years ago it was difficult to take the idea of Scottish independence seriously. Now, Murphy sees leaving the UK as the only way for Scotland to reach its full economic and human potential. 

In this special extended episode, he discusses the economic forces powering the Yes movement, dismantles the case for GERS and looks at the key issues of currency, investment and taxation that must be addressed to win the independence argument.

Watch more from the Journey to Yes series here.

Picture courtesy of Phantom Power Films

Look at how important CommonSpace has become, and how vital it is for the future #SupportAReporter

Comments

MauriceBishop

Wed, 06/21/2017 - 17:53

"Let's be clear about it" (to use one of his own stock phrases): he offers no explanation of how Scotland will establish its own currency. Denmark is of a similar size, level of prosperity, and circumstance (shares a border with a larger currency with which it does the preponderance of its trade). Their experience with managing their economy tells them it is prudent to have £55 billion in reserves at present. But yet the amateur economists who make white papers for Common Weal want us to believe that indy Scotland (similar size economy) magically only needs £15 billion to start with.

Why? Not because of any differences between the nature of the Scottish and Danish economies and the risks they encounter, but because that is the only sum that might be attainable without a sustained period of higher taxes and reduced services. In other words: it is an argument of pure convenience.

It is an appalling plan that will be ripped to shreds if it ever encounters anyone from out outside the separatist bubble.

So why is the separatist movement relying on the work of amateur economists? Because when its leadership consults people who are actually in command of the subject matter, they don't like what they hear. Which is: Scotland could only afford to have its own currency if it is willing to endure a sustained period of genuine austerity that creates primary budget surpluses. Which means a regime not unlike what Greece has now, for a decade, maybe a generation.

This is why Alex Salmond opted for his doomed strategy of forcing the rUK into a currency union against its will. This is also why Nicola Sturgeon simply refuses to talk about currency, and instead just pretends it is a small detail we can discuss later.

Also: imagine, he says, a Scottish Investment Fund and the wonders it would produce. We don't have to imagine. The SNP have been picking winners and losers in the market for 10 years now, and handing out public sector funds to the shiny objects that catches its eye. So all we have to do is look at their track record in this regard. And it is appalling. None of the project that have been announced with such fanfare have ever delivered but a fraction of the jobs that are promised at the press release, and I think around half of them have in fact gone bust.

The simple fact is there is no politician - not in Scotland, not in the UK, not in the word - who is qualified to pick winners and losers.

And, finally: once again he rubbishes GERS, saying it is just a bunch of estimates. If he were a real economist - not an accountant who claims to be an economist - he would understand how silly his argument is. Almost every piece of macroeconomic data we use is based on estimates. And once again he asserts that Graeme Roy of the FoAI agrees with him. He does not. He wrote a lengthy blog post in March to refute Murphy quackery when first it arose. I expect he is going to have to keep on repeating it over and over again.

The first people to publicly complain about the GERS methodology were the Cuthberts. But that was over a decade ago. There is an archive of their work on their website. In their 2011 paper they say that the issues they had raised were dealt with in 2007 when the GERS methodology was overhauled by the SG statisticians. And this very site less than a year ago carried a piece by Margaret Cuthbert on the topic of the Scottish accounts. She didn't utter a syllable of complaint about the GERS methodology. But she did complain quite a bit about the opacity of the SG accounts and the amount of things that the SG were doing that are off the books. They used the phrase " poverty of accurate information" - but entirely in the context of Holyrood, not Westminster, doing the withholding.

geacher

Wed, 06/21/2017 - 19:26

Labour's Shadow Chancellor John McDonnell on Murphy: "He is not the economic adviser and never has been, because we doubted his judgment, unfortunately. He is a tax accountant, not an adviser. He is actually excellent on tax evasion and tax avoidance, but he leaves a lot to be desired on macroeconomic policy".
He is a "professor", but it was not earned, it is an honorary one. That he is an authority on tax matters and tax avoidance is not in doubt, but he has no economic qualifications whatsover, and anyone who witnessed his embarrassing performance in the debate with Kevin Hague on Radio Scotland a month or so ago will be surprised as I am that he is rearing his head again. He angled for a job with Corbyn's inner sanctum and as was not even considered, so since then he has hitched his skirts up like some Sauchiehall Street whore hoping to attract the attentions of any party that will give his idiotic views some credence. That Common Space would put this nonsense up dilutes their credibility somewhat.

Phantom Power

Wed, 06/21/2017 - 20:38

That you, Kev?

Phantom Power

Wed, 06/21/2017 - 21:33

You're clearly no economist, Maurice. What a load of old tosh.

MauriceBishop

Wed, 06/21/2017 - 23:40

@Phantom Power: Feel free to use the space below to apply facts and reason to my comment to demonstrate its errors.

Derek Henry

Thu, 06/22/2017 - 02:29

This is a huge mistake by common space.

You should have interviewed people who know what their talking about. Richard is a great guy but is found wanting when it comes to issues like these.

Richard has been dropped by Corbyn and McDonnell and pushed to one side precisely because he can't get past this incorrect belief in the magic power of taxation. Stephanie Kelton, Warren Mosler, Neil Wilson, Bill Mitchell, Randy Wray, Mike Norman and many others have tried for 10 years to explain to him that there is no social power of tax.

Unfortunately, he just won't listen and now finds himself in the wilderness.

If common space is serious about putting a cast iron case forward for Scottish Independence by creating its own central bank and issuing its own currency then they have no choice but to speak to the experts above on the matter.

Prof Bill Mitchell

http://bilbo.economicoutlook.net/blog/?s=scotland

Neil Wilson

https://medium.com/modern-money-matters/latest

Warren Mosler

http://moslereconomics.com/

Stephanie Kelton - Bernie Sanders economic advisor

http://neweconomicperspectives.org/

Randy Wray

http://www.levyinstitute.org/scholars/l-randall-wray

Mike Norman

http://mikenormaneconomics.blogspot.co.uk/p/about-mike-norman.html

Pavlina R. Tcherneva - The world expert on the job guarentee

http://www.levyinstitute.org/scholars/pavlina-r-tcherneva

If common space would like to arrange an interview with any of these above send me an email and I will have a chat with them.

Derek Henry

Thu, 06/22/2017 - 02:33

Maurice let me have a go please.

Please answer this simple question.

Since the UK has left the gold standard please list the 5 step process that proves taxes fund government spending

1)

2)

3)

4)

5)

There a simple question to get you started.

Derek Henry

Thu, 06/22/2017 - 02:38

Maurice not that you are going to get the right answer to that simple question can you then go on to explain the huge difference between

a) Since the UK has left the gold standard please list the 5 step process that proves taxes fund government spending

1)

2)

3)

4)

5)

And

b) Since Scotland is nothing more than a county council and does not have its own central bank and does not issue its own currency. please list the 5 step process that proves taxes fund government spending in Scotland.

1)

2)

3)

4)

5)

What's the huge difference when talking about government deficits and national debts ?

Derek Henry

Thu, 06/22/2017 - 02:47

As for Norway.

Sovereign wealth funds rely upon your export of savings to exist. The Norwegian Wealth Fund allows Norway to supply oil (and the odd salmon) in exchange for savings products. The Wealth Fund has no policy other than to accumulate savings products over time — which gives it a huge amount on the asset side of its national balance sheet. Norges Bank can then discount this asset into Krone for its domestic money supply purposes.

And that is the first brake on the ‘what happens if they spend it all’ fear. Foreign financial assets are the balancing asset for the country’s own money supply. It makes the numbers at the national level look good. They won’t be getting rid of it in a hurry until that view changes. And that view is unlikely to change if the country is running an export-led policy since the two are part of the same ideology.

But let’s say the central bank purges its neo-liberal types and hires some people who realise central banks can’t go bust in their own denomination. They ignore the sovereign wealth fund, say it is a silly waste of time, and stop worrying about the inevitable mark up to ‘Other Assets’.

And let’s say the Norwegians elect the Hedonistic party that promises to swap their huge hoard of savings for actual stuff and blow it all on imports. What is all that spending going to do to your economy?

It is going to cause an export boom. (Which everybody is desperate for in the present, but apparently is a terrible thing in the future. Answers on a postcard…)

Will that stop or reduce domestic spending in your currency area?

Probably not, because if your investment expansion caused by the boom is insufficient to handle the load, you can always rely on that circuit breaker — more imports.

It goes something like this:

The Norwegians order stuff from your currency area backed with their hoard of savings.

Your economy ships stuff to the Norwegians in return for their savings in your currency.

Exporters have an income and pay people.

Those people then start to buy stuff, but everybody is working for exporters and there is nobody to make anything (allegedly).

Other nations on the planet — running export led policies — spot the wealth in your nation and turn up in droves to sell their wares.

You buy imports and they keep the profits as savings (possibly in their own sovereign wealth fund).

The net effect is that the Norwegians reduce their savings in your currency and other export-led economies run up savings in your currency. So you spread the Norwegian demand around the planet to the extent that you can’t satisfy it yourself.The net effect is that the Norwegians reduce their savings in your currency and other export-led economies run up savings in your currency. So you spread the Norwegian demand around the planet to the extent that you can’t satisfy it yourself.

Why ??

Because " savings" are an export product.

https://medium.com/modern-money-matters/savings-are-an-export-product-e1...

Derek Henry

Thu, 06/22/2017 - 03:02

It becomes easier to see if you think about it from the point of view of a net exporter to the rest of the world.

If you export to excess you gather foreign currency. You have no choice because there is insufficient imports to swap all your earnings to the local currency.

So how - as a net exporter - do you pay all your staff who want local currency?

Answer: you sell the foreign currency to your bank who then creates the local currency for you in return.

This is obvious when you think about it. Foreign currency is an asset - a loan to a foreign nation. Once the bank has hold of it in the asset column it can just mark up your local currency account and 'credit' you with the exchange value.

And this is how net exporters work in aggregate. They hold foreign currency hostage (or foreign currency bonds if they can get them) so they can discount the correct amount of local currency against it. It makes the accounting look good at banks and central banks and has the added advantage of draining domestic circulation abroad making more space for your goods and services exports.

Now think about it in terms of multi-national banks. If I'm banking with HSBC there will be a local branch in Japan and a local branch in the UK. If a Japanese company has an excess of Sterling it needs Yen for, then the local branch in Japan will move the Sterling to its account at the UK branch (HSBC Japan - Sterling Asset a/c) and then mark up the Japanese company's account in Yen. The Sterling then becomes just an intra-company loan of no significance to the overall accounts. If there is a build up of Yen on the UK side, the bank can do an internal swap to eliminate the currency on both sides and shrink the balance sheet (which reduces the liquidity ratio requirements on both sides).

So if you eliminate interest paid on UK government assets and force foreigners to hold just currency, they will likely continue to hold it within their banking system as the offsetting asset to local currency creation. Because that's what you have to do to continue being a net exporter in a floating rate currency (the alternative is to get 18 other countries to sign up to use your currency Eurozone style).

They may have to go through a cycle or two of excessively high currency rates (and therefore we have low currency rates) and trade collapses before they get the message. It all depends how astute the foreign politicians are and whether they care about their own economy or some other political end.

It's all still Sterling savings.

The difference is that the bank account the Scottish government uses will bounce cheques when they reach their overdraft limit. Payment authorisation would be refused without HM Treasury permission. Just like any other local county council area in the UK.

Nicola thinks she's running something other than a glorified county council.

She isn't.

The UK does the tax collection across the UK. Scotland is nothing more than a glorified county council. If you did the accounts for North Yorks County Council you would find it too has a 'deficit' that is filled by the block grant and whatever 'borrowing' HM Treasury permits.

So the leakage out of the arbitrary line of the Scottish border within the Sterling currency zone is to anywhere else in the world (including the rest of the UK) - and the rest of the UK saves a lot of Sterling. That leakage, plus any net savings within Scotland, is what causes the Scottish government sector deficit.

Gers is a complete and utter farce based on a household budget ideology.

Ultimately in the same way that Greece needs to tax German savers, Scotland needs to tax UK savers. To have the power to do that you need UK savers saving in Scotland's currency which the Scottish government can control and if need be tax. Otherwise Scotland will run out of money as it all drains to the rest of the UK.

At the moment Scotland is just a "currency slave county council."

Foreigners save your currency if they want to sell you more things than they want to buy from you. The floating rate would make sure that

export + foreign savings = imports in terms of the Scottish currency.

You can tax it because it is the Scottish currency, and therefore to transfer it to anywhere where it is anything other than inert it would have to go through banks that are licensed by the Scottish authorities to deal in that currency. They will do as they are told if they want to retain their licence.

Oil is a hug red herring. An enormous canard. It becomes important because although all the dealings are essentially in US dollars and most of the balance sheet is in US dollars, when it is reported in the national accounts it is declared in the reporting currency - which is the Scottish currency. So it's an accounting trick mostly to make the figures look 'good' superficially. The actual Scottish effect is just the fraction of the oil income that has to be physically exchanged for the Scottish currency - to pay staff, suppliers and of course the licence fee and other taxation for the resource.

Government Spending only comes back if you have your own currency. If you use somebody else's then it leaks into a different banking system. Greece spending ends up under the control of the Bundesbank. Similarly Scottish spending ends up under the control of the Bank of England, which is owned and directed by the UK government. As long as that arrangement stays in place, Scotland is owned and directed by the UK government - like any other county council and any other currency slave.

That is the key issue with fixed exchange rates. You end up with control of the money under some other entity which you have to follow the directions of.

If Scotland became independent then what happens depends upon whether it floats its own currency or not. That is the only way to ensure that Scottish money doesn't leak anywhere.

What the size of the government deficit is will still depend upon how many people want to net save in the new currency.

Because the government deficit is the non government sector surplus.

https://www.advisorperspectives.com/images/content_image/data/2b/2b5653b...

Derek Henry

Thu, 06/22/2017 - 03:09

Switch yourself around to the point of view of a Chinese producer. Put yourself in their shoes.

Then what happens is this.

There is insufficient demand at home to keep your factory going. Just not enough orders coming in. So you either close or you entertain these orders from a foreign nation offering funny green bits of paper that are worthless to you.

So you have a word with your local PBC branch and they let you know that they'll take the funny green bits of paper and give you real money in exchange. And they can even tell you how much real money you'll get.

That reassures you and off you go producing safe in the knowledge that you'll get real money for your output which you can spend in the shops in China.

So how does the PBC do that.

Again, put yourself in the shoes of the PBC. In the hands of a bank foreign currency is a loan asset. It's collateral. What does a bank do with collateral? it discounts it for the local currency.

The transactions are DR Foreign currency assets, CR local factory owner's deposit account

Now read that again. What has happened?

The bank has gained ownership of a valuable foreign asset *and created local money against it*.

This is how foreign export-led economies maintain circulation of their local money in the face of the drain to savings. They hold foreign currency assets to make the balance sheet look good. It is far, far easier politically to discount against so called 'hard currency' than it is against the apparently nebulous 'taxpayers equity' asset. Even though functionally it has precisely the same effect - injection of local money into the economy.

Yet again Norway.

You're an oil producer in Norway and you earn in US dollars. But the Norwegian government taxes you heavily in Krone to avoid a 'Dutch disease' issue and to 'save' for future generations.

So what happens?

The government pays the tax amount, in Kroner, into the Government Pension Fund using the usual mark up routine. It charges the oil funds the tax amount (as corporate taxes and licence costs). To get the Kroner, the oil company swaps USD for Kroner - effectively with the Pension Fund. The Oil company now has the Kroner and can settle its tax bill.

The Pension Fund now has USD which it uses to buy equities from abroad and that approach drain more USD in income (and Euros, GBP, etc). The fund puts a huge 'hard asset' on one side of the national balance sheet which can be discounted quietly by the Norwegian central bank to maintain the circulation of Kroner in the face of the drain to savings.

You can do much the same with Denmark - except that the pension funds there are privatised.

The key is that exporters are not just making money. They are generally wanting to make the local money in export-led nations, and it is the finance system that does the saving in foreign currency bit - all the way up the pyramid to the top if necessary.

Derek Henry

Thu, 06/22/2017 - 03:19

There's nothing stopping Scotland becoming like New Zealand or Australia if we created our own central bank and issued our own currency just like they did.

Anything else is just scare mongering surrounded by lies and deceit.

As for the cost ?? It's a non issue

http://www.3spoken.co.uk/2014/03/scottish-independence-myths-national.html

The global rules state all Scottish debts will be Lex Monetae

https://en.wikipedia.org/wiki/Lex_monetae

Something we will be able to create at will from thin air using a computer keyboard. Once we have our own central bank and issue our free floating currency.

Derek Henry

Thu, 06/22/2017 - 03:26

As for Maurice Bishop.

I Gurantee Maurice will not answer the first simple question I asked. I Guarentee Maurice has not once in their life looked at the actual accounting between

a) HM Treasury

b) The Bank Of England

That is a 100% certainty.

On top of that Maurice will never answer the 2nd simple question I asked because he can't even answer the first.

Derek Henry

Thu, 06/22/2017 - 03:48

Here's a clue Maurice.....

I'm the monopoly issuer of the new Scottish currency let's call it the crown.

Your crowns are worthless to me. When you give them to me I destroy them as I don't need your crowns so I can spend more crowns.

I can create all the crowns I need from thin air using a computer keyboard to buy the things I need. Smart people call it government buying

https://medium.com/modern-money-matters/smart-people-talk-about-governme...

All the crowns I collect from you. I destroy in the overnight interbank market so my commercial banks can balance their reserves to zero and my new central bank can meet its overnight interest rate.

So Maurice....

First I'm going to run a balanced budget with you.

I'm going to give you 100 crowns and then tax you 100 crowns.

So how much can you now save ? spend in the economy ?

I'm now going to run a budget surplus with you.

I'm going to give you 100 crowns and then tax you 200 crowns.

So how much can you now save ? spend in the economy ?

I'm now going to run a budget deficit with you.

I'm going to give you 100 crowns and then tax you 30 crowns.

So how much can you now save ? spend in the economy ?

Maurice there's a reason the UK has ran budget deficits for nearly 300 years. Otherwise nobody would be able to save.

The £1.8 trillion national debt is just the UK non governmental sector sterling savings + foreigners sterling savings to the penny.

Or simply, what is left over after you subtract all the taxes ever collected in our history from all the government spending ever spent in our history.

£1.8 trillion that everybody owns as savings in UK government bonds - Pensions. Isa's, or on the mantle piece or under the bed and in your wallet.

Scott Egner

Thu, 06/22/2017 - 10:25

Derek I think you'll find Richard pretty close to MMT in a lot of ways. I actually picked him up differently in the way he described the role of taxes for a currency issuing govt. I think Richard has talked in the past about taxes NOT being used as a funding mechanism in that regard which agrees with mmt. Obviously they ARE a funding mechanism for Holyrood since it doesn't have a central bank.

As for Maurice, it's hard to unpick a mind that has been so infested with neoliberal groupthink which is why I haven't given it too much effort. Let's remember though that most of the economics profession learned their trade from books written during the gold standard and the days of fixed interest rates hence the obsession with foreign reserves amd the idea that government finances are comparable to a household.

I would definitely agree though that phantom power talk to the likes of prof Mitchell who wrote a few articles during the early days of Indyref. I would also recommend talking to Steve keen, author of debunking economics who also gives a very clear debunking of many of the mainstream economic in ideas out there. He predicted the GFC of 2008.

An economy is limited by the resources it has access to, not the fiat currency it produces by means of double entry book keeping. I would encourage folk to think in terms of Scotland's potential resource per capita above all else.

If you want to see the advantages of a sovereign floating currency and what it can achieve, look no further than Iceland.

Derek Henry

Thu, 06/22/2017 - 12:59

He is but not close enough Scott.

Once you get down to the nuts and bolts of it all any decent opponent will destroy Richard's thinking.

Neil Wilson, Stephanie Kelton and Bill does it on a monthly basis.

Like I said Richard is a great guy but unfortunately is a liability not a strength when it comes to our independence.

A job guarentee is a core principle of MMT and would be a core principle if Scotland gained it's independence.

Richard does not know how it would work. There is no social power of tax. MMT blows Richard's religious belief (and those of his Tax Justice friends) out of the water. The public services come first, and the tax follows that if necessary. Tax is largely a hygiene factor and should be avoided if there are better tools available to move resources to the public sphere and manage markets so they deliver less unequal outcomes. The Job Guarantee being the main one - since it skewers the power over labour that corporations currently hold.

Richard has been dropped by Corbyn and McDonnell and pushed to one side precisely because he can't get past this incorrect belief in the magic power of taxation. And that makes Richard part of the problem, not the solution. He's had eclectic beliefs for the best part of two decades.

If the Scottish government maintains a peg with the UK then there isn't really such a thing as a 'trade deficit'. It's a work of accounting fiction as the Scottish government has then decided to remain a county of the UK within the UK currency zone.

The reality is based around the function of the government account, and where it is based. Let's say they have it at the Royal Bank in the same way that the Finnish government has theirs with Danske Bank.

The Royal Bank can then provide the Scottish government with an overdraft (since the restriction in Article 123 of the EU treaty only apply to central banks, not commercial ones) and charge the Scottish government an overdraft interest rate. That interest payment is then given to Royal Bank shareholders. The overdraft is reduced by the sales of Scottish fixed interest debt - but that is nothing more than a transfer from RBS shareholders to holders of Scottish debt. The payment is still the same, and still in Sterling.

As ever you have to forget about the numbers and look at the reality of the situation. Find the people who are able to say 'no', and how they can enforce that. The no happens when commercial banks refuse overdrafts and people refuse to buy the state debt which then means government cheques bounce. At that point the purchases are not purchased and real output collapses - including the supply chain that relies on that circulation.

For the transfer of Sterling into England to happen, somebody somewhere has to do the 'borrowing' that allows the saving - or the import sales into Scotland cannot happen in the first place.

That is the wrong way of looking at it. The way of looking at it is that foreigners have to take Scottish pounds or they won't be able to sell anything to Scotland. Those that find a way of taking Scottish pounds (by discounting them into their own currency via their own banking system) will get the trade. Those that don't will lose the exports to Scotland.

A Scottish government should refuse to operate in anything other than Scottish pounds and should offer import opportunities to those foreign salespeople prepared to take Scottish pounds over anybody else. You open up your country to exporters to your nation. If there are no takers then you cut your coat to your cloth based upon the current terms of trade.

Neil Wilson has been doing a bit of thinking as to whether a floating currency could be introduced at city level - say Glasgow - particularly in Scotland where the Scottish government may have the power to allow it to work. It's part of investigating how things would work in a fully dollarised environment (i.e. where all saving stocks are not in the local currency - and therefore neither are the borrowings).

If nobody saves in your currency, you don't have a deficit. The budget is balanced. But the budget has still forced circulation and activity in the real realm.

Like I say I speak with the top MMT'rs both here in the UK and the US. I can ask them to do a video for common Space.

Derek Henry

Thu, 06/22/2017 - 13:08

Consider what the Norwegian Sovereign Wealth fund owns - just as an example. Shares, property, bonds in Sterling. When it receives the coupons, dividends and rent it then buys more Sterling assets with them. What does that do? It just forces up asset prices in the UK focussing the economy on producing assets, rather than actual stuff.

So the profit outputs go to those who trade assets to those who hoard assets. Also known as 'rich people'.

A very neoliberal viewpoint. If you want to encourage saving, (i) why do it with an instrument that is permanently tradable in an infinitely liquid market backed by HM Treasury as buyer of last resort? (ii) why do it with an instrument that can be held by business and banks and gives them a risk free income for doing nothing?

Surely if you wanted to encourage saving for whatever reason you'd do it with five year Granny bonds at National Savings that can only be held by individuals?

Gilts are there so that government can pretend private pensions are private and not a state pension/tax collection system in disguise. Index linked gilts were specifically brought in at the request of the pension industry.

The rest are used as collateralisation instruments in the finance industry which is why, as Bill mentioned in one of his many blog posts, the Australian finance industry begged the government to continue issuing government bonds when Australia was running a surplus. Again this is so that we can pretend that the banking system is private and not a state franchise.

There is, and remains, no need for government bonds. It is just a corporate welfare payment.

As an example imagine a population where some are looking to move from spending to saving and some are moving from saving to spending. If you have tradeable saving instruments in a forced liquid market then nobody's behaviour is changed at all. You're relying entirely upon the idea that the price of saving will change minds 'at the margins' and there will be no networked feedback loop between the individuals. In other words you're assuming advertising and Facebook don't exist.

If we could gain our independence we would not issue bonds as there is no need we could just use our ways and means account.

The Ways and Means Account is just an infinite overdraft with the Central Bank, and it grows over time to balance the net-savings of the non-government sector just as the Gilt stock does now.

The new Scottish Treasury simply doesn't issue any Gilts any more. Any funding of private pensions in payment should be done by offering annuities at National Savings, which would also have the neat side effect of 'confiscating' net savings and making the deficit go down.

It's irrelevant what interest the Scottish central bank charges on the 'Ways and Means' account since any profit it makes from it goes back to the Scottish treasury anyway. So it can 50% if that gives the necessary level of satisfaction to mainstream economists.

What you have is a standard intra-group loan account between a principal entity (Scottish Treasury) and its wholly-owned subsidiary. Normally those sort of loans are interest free for the fairly obvious reason that interest charging is utterly pointless, and they are perpetual for the same reason. Rolling over is totally pointless.

Any term money can then be issued to the commercial banks directly by the Bank of Scotland - up to three month bills.

Derek Henry

Thu, 06/22/2017 - 13:23

Common space should have being doing this years ago.

These are the solutions this site should be promoting and should have been doing it years ago.

We could help with that and create a series starting with an educational back grounder on how everything works and then show what a Scotland with its own central bank and free floating currency can achieve.

We as a group reached out to Alex years ago and Wings and were ingnored.

Yet, MMT is neither political or ideological it is just how things work and the actual accounting between a treasury and central bank shows you that.

This is how government spending actually works

http://heteconomist.com/exercising-currency-sovereignty-under-self-impos...

Yet, you choose to ignore it.

Scott Egner

Thu, 06/22/2017 - 13:32

Derek I do understand that the issuance of bonds isn't a borrowing function. There are different levels you can go to in order to debunk the govt solvency myth to people. In fact I spoke to a group about this last night. I showed a short video of Randall wary explaining what a bond operation actually is, but when I ran a few QE slides that proved the eureka moment for most people.

For me we need a spread of opinions from the economics profession. For me the chosen person I would run with would be Stephanie Kelton just for the way she presents her work but we certainly need more than one and it has to be presented in a way the lay person can understand. Framing is so important which is why the household mythology has been in play for so long.

The BBC will certainly wheel out impartial 'respected' 'think tank' economists from the IFS, Fraser or Allander etc etc and we need enough card carrying economists to challenge them.
Would certainly be good to make contact with Bill etc to get an idea about their willingness..

MauriceBishop

Thu, 06/22/2017 - 14:30

@Derek Henry

One of the world's experts on currencies is right here in Scotland: Prof. Ronald MacDonald. Like Salmond and Sturgeon, you "forget" to put him on the list of people to consult, because he is going to tell you what you don't want to hear.

Your pet crank theories are a diversion from the central question of how can iScotland afford to start its own currency - the question that Murphy avoids. As do you. "There's nothing stopping Scotland becoming like New Zealand or Australia if we created our own central bank and issued our own currency just like they did" you say. Well, there is. And it is an example from that same part of the world - South Africa.

Watty

Thu, 06/22/2017 - 18:40

CommonSpace is doing the indy cause no favours by rolling our cranks like this. Find good, respected economists, not tax evasion experts.

Derek Henry

Thu, 06/22/2017 - 23:34

Maurice,

Please keep up with the debate Prof Ronald Macdonald's Paper was destroyed full of neoclassical nonsense. It wasn't worth the paper it was written on.

Whoever crowd funded it wasted their money. It didn't last 3 hours under scrutiny before it was debunked. We heard it alright and then laughed at it.

What about South Africa you have no idea what your talking about ?

Answer the 2 simple questions I asked you. If you don't know where your taxes go after you've paid them.

Why are here ??

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