The Gothic Economist's Referendum view

So here is my last view of the referendum, I would like to say that in all of my posts or comments on the Scottish vote, they have all been taken from an economic & behavioural viewpoint.

The Currency

The UK will not enter a monetary union with Scotland regardless of the debt levels, due to the fact it gives a major error to the UK economy’s currency fluctuations. Also the Scottish economy will have to devalue itself to become competitive. Establish trade agreements which we have no knowledge of, seeing as Scotland’s requirements for EU membership do not exist is a big risk, and puts Scotland in unknown territory.

The major issue is that if there is no currency union or even if there was, the deposits of every bank account in Scotland would no longer be guaranteed by the Bank of England.

So we can assume a new currency will be established and will most likely be a pegged mechanism, that will see a central bank created with its own monetary policy. However this peg will require reserves of more than 40 Bn GBP, in order to defend any currency attack. If it were to be mature and stable the Hong Kong equivalent is 135 Bn GBP.

The local economy

For those people who feel Scotland will thrive within 3 years, will be sincerely disappointed and of course the UK will be worse off without Scotland, because Scotland is bringing down their economy. Which investor in their right mind desires to keep their assets in an area where uncertainty is high, and that losses deem to be most certain.

Companies are scaring the Scottish public,and this is for a reason. It is that bad and these companies will be heavily taxed. They may still operate in Scotland but they will not mind becoming more tax avoidant, as it will cost less. Thus the Scottish economy will be relying more on income tax. Austerity will have to occur in the first year and the Scottish government would have to go to the money markets, though the money markets are highly unlikely to be friendly in the first 5 years.

Oil & current world economic cycle

There are a few major issues with the commodities side. Oil is a great thing, but bear in mind if your currency does not hold large reserves... If an oil spike were to occur (which many economists will see as being certain as gravity this winter), Scotland will have serious problems. Especially as we are about to enter another recessive phase in the growth cycle. I take this as it can already be seen from slowdowns in Chinese growth.

Chinese Economic seriousness

China is looking more by every month of turning into a Japanese economic cycle. The fear behind this is, is that is the debt burden http://time.com/3332552/china-japan-economic-crisis/ . What is more troubling is the heavy value the Bank of China have in US Treasury Securities which they may sell, even more so now for Geo-Economic strategy.

The UK Economy

The UK will be a separate country, whose obligations are to help its own UK citizens and will rightfully do so. However Scotland will be a foreign country and it will take some time to establish itself as a working economy, and the UK will have its own problems to think about, due to the serious loss of assets and investment which will have occurred. Nearly 1 Billion GBP left the economy last week, just due to the referendum.

The Geo political economic world.

From my previous post, the world looks like it is entering the brink again, thus for a new economy to prosper from this is looking rather doubtful.

The Scottish Currency and Putin Economics

The week beginning was marked with Russia forcing aid into rebel held eastern Ukraine and the Second debate on Scottish independence from the United Kingdom.

Alex Salmond a bachelor of Economics and History, that went on to be leader of the Scottish National Party went against former Chancellor of the Exchequer Alistair Darling in a Televised debate on Monday night.

The debate, was a battle of words, with no answers for many on analysing and interpreting the outcome of Scotland's economy. The major being the currency. Alex Salmond fended off the question, though to many researchers and analysts the answer is a separate diluted currency. With this answer assumed as the most logical for an independent Scottish economy to function, let a alone work, the creation of a currency is inevitable.

The major issue en-laced within the UK government's need is that all UK debt is embedded in valuations of assets, such as assets in Scotland. This would in turn affect the borrowing capabilities and pricing for the remainder of the UK. Though the same would be for Scotland, the Scottish economy would have undertake its share of the debt produced from toxic assets incurred within the financial crisis. This in itself will cause capital flight to likely occur.

How to get the debt from Scotland is more of a major issue that the UK has to figure out, and will markets react to an unsound Scottish balance of payments book? With the quick decision making of the financial markets, and how to justify the information, the risk is acute.


Russia's economy is set for a strong downturn with the economic sanctions taking a deep toll on the balance of payments. Vladimir's game strategy back in march, was very successful as the economic sanctions over Russian influence on Crimea would have lifted and Russian territory would have expanded. It was a great strategic move as the markets saw their financial power see no change in the political strategy of the Kremlin. Though we are nearing September, and long term sanctions are not favourable. Even for a low rouble.

Though with low economic growth for Russia, will it be likely that Putin, takes a more aggressive stance in the Ukraine Crisis? After heightening the tensions with Kiev after sending a large convoy of "Aid" supplies into the rebel stronghold, Russian provocation of the west is becoming less forward strategy.Though a lot of moves made by the Russian premier in March were new out of the rule book.

Looking at the soft and hard currency position. Many companies from and working within Russia,are finding it next to impossible for day to day transactions to be conducted in the Russian Rouble. The oil and gas sector is heavily dependant on outside technology and skills, a major area the economic sanctions are effecting. Companies such as BP who own a major majority of Rosneft(Russian national oil company), are left being unable to transfer income to the UK subsidiaries or supply their projects.

From an investing point of view for game strategy, the likelihood of an escalation occurring even more is inapt. Conciliation of Russia and Ukraine, in order for the easing of economic sanctions is greater probability. However with multiple fields of major medical, civil and political unrest around the continental plate, there is greater chance of the less probable decision occurring, as with widespread risk, there is a greater prospect to get away with more.

Stormy seas ahead G.E.