Prior Planning and Preparation Prevents Piss Poor Performance. So went the acronym so beloved of military instructors as they regaled their students with the importance of being prepared for as many eventualities as they could think of. They were absolutely correct and we need to be prepared for the upcoming maelstrom created by the EU referendum and today’s announcement, by the First Minister, of a draft bill for a second Scottish independence referendum. I don’t have a crystal ball but I don’t need one to see some of what comes next. I’ll try to be as logical as I can, but there is not much logic around at the moment so please forgive me if I seem to go off at a tangent here and there.
It’s the economy stupid
The UK economy is in the first stages of what will probably be viewed as the most severe depression ever. The vote to leave the EU caught the UK government with its pants down and exposed its utter complacency in assuming a No vote. Now we are drifting along the river Brexit with no navigator and no means to propel towards any particular destination even if we knew where we wanted to go. The reality of our desperate situation is slowly dawning on the currency markets and they have been dropping the pound as if they have suddenly realised that they are holding a turd (which they are).
The resulting sell off has seen the pound dredge some entirely depths not seen for 168 years according to the FT.
Pound to Euro 13Oct16 (Graph courtesy of http://www.xe.com)
The fall against the Euro, our biggest market, is bad enough. But it’s the fall against the US dollar which is more alarming:
Pound to Dollar 13Oct16 (Graph courtesy of http://www.xe.com)
Since all commodities are priced in dollars the recent falls in the pound/dollar exchange rate are going to push the prices of everything up, the Marmite/Unilever issue is just the tip of the iceberg (Unilever wanted to increase prices by 10%). This will feed through into the inflation figures in around 6 months time and the Bank of England will be under severe pressure to increase interest rates. For an economy which is hooked on cheap money this will be very damaging, can you afford a 5% increase in your mortgage rate? Now would be a very good time to reassess your situation and maybe lock in a fixed rate for a while.
Meanwhile the price of oil has been increasing, $52 per barrel as I write this. This will push the price of everything up and therefore increase inflation as well.
Oil price 12 months 13Oct16 (Graph courtesy of BBC)
Coupled with that are the negative yields on government bonds, or gilts as they are known. Effectively the government is being paid to borrow money! This can’t last of course. Once the financial markets look at the levels of UK debt and the potential for the UK to pay that money back, they’re going to want a better yield for the increased risk. This means that the bond prices will fall from their current highs and the respective yields will increase. It is these yields which drive the longer term interest rate. So the Bank of England will be forced to raise interest rates sooner than it wishes.
In short the UK economy is about to suffer a severe downturn, which will make the tired old economic arguments against Scottish independence look weak at best. The economic argument was the most potent weapon wielded by the despicable Project Fear during the first independence referendum but it will become one of our best arguments for independence very soon.
I don’t particularly like the economic argument, for me independence is a normal state of affairs for a country and having the opportunity to fashion our country in the way we wish it is all the argument I need. However we will need every advantage that we can get in order to counter the British state so I will be thankful that the economic argument will be in our favour.
The Brexit vote will allow us to be able to deploy such arguments as:
- UK drowning in a sea of debt (which can’t be serviced and a default is imminent)
- Big business deserting the UK for the EU
- Huge job losses
- Massive, and increasing, wealth inequality
- Huge hikes in taxation and reductions in public spending
- Big reductions in international investments
The bust will be painful, but as an opportunity to counter Project Fear it must be seized.
The next most potent argument wielded by that ermine socialist Alistair Darling was the currency question. The Tories of all hues gloated that we couldn’t use our own currency post independence. The argument was a straw man, as fallacious as it was arrogant. But the pound is now in free fall and if it carries on then the Smakaroonis could well be considered a reserve currency in comparison.
The fatal flaw in the currency union argument, even though it was sound and the best solution for Scotland and rUK, was that it gave the initiative to the UK government who ruthlessly exploited it. We cannot allow this to happen again.
For me the only way to answer the currency question is for us to have a pound Scots. A free floating currency would be preferable, however it would probably be necessary for there to be a peg during the currency’s infancy for stability. This MUST NOT be a peg to the pound sterling because this would hand at least some of the initiative back to Westminster. A peg to the Euro, the US dollar, or preferably a basket of currencies would be my solution.
A little known fact is that for every Scottish pound in existence there exists an equivalent pound sterling lodged with the Bank of England. In 2007 there were just over a billion Scottish notes in circulation and an equivalent lodged with the Bank of England. We would be having these assets back of course, they would be a useful deposit for starting our own central bank.
The weakness in the currency argument is that we may be required to use the Euro. However if we can retain our current membership conditions this wouldn’t be a problem. But I expect the forces of darkness will relentlessly pursue this line, perhaps our friends in the EU can help?
You can’t have a referendum!
I can just picture Her Majesty Queen May standing outside No. 10 telling us Scots that we cannot have a referendum as she wields the royal prerogative against democracy again. I see this discussion being had already but it is unlikely to come to pass. The main reason being that we gave the SNP all the mandate they needed to hold one when we re-elected them. It was in their manifesto and all they are doing is keeping their promise, just like the Tories kept their promise to hold an EU referendum.
Of course the power to hold a binding referendum is reserved to Westminster, it was temporarily devolved for the first independence referendum by the Edinburgh Agreement. So theoretically the UK government could withhold the power. This is unlikely to happen because it would play sweetly into the hands of the SNP who would wield the “denying democracy” argument with devastating effect. Can you imagine the outrage if we were to be told by the Viceroy of Scotland that we couldn’t have democracy?
The Scottish government could hold a non-binding referendum any time they choose, there is a pro-independence majority in the Scottish parliament so the bill would be passed. This would allow the Scottish government to hold the referendum free of the constraints of Westminster. Can you imagine the UK government allowing a referendum to happen which they had no control over? Not a chance.
So I think it highly unlikely that the Tories will block a second referendum.
We need to prepare, for the time is short. I will endeavour to ponder more imponderables soon, but it’s late and I have an exam tomorrow, so it’s Bon Soiree.