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.

A Russian Trade Union, a love story with Ukraine

An interesting new political strategy is happening in Eastern Europe and on the north Asian plateau and it all smells too much like strategic economics again. Russia is moving its economic weight, but this time for a new strategic move of geographic proportion, an expansion into the realm of the trade/Customs union.

The EU is not only a unity of policies, with endless bilateral agreements and an entanglement of laws. Its main function at the end, is primarily to liberalise the movement of free trade within the European countries, which we closely now refer to as member states.

The reason to join a customs/trade union are simple, export growth that can lead a much better balanced current account for a country. Germany currently being the most prosperous, and even more so since the European Monetary Union was introduced, has led the way in showing how free trade is a great source for GDP.

Russia is currently focusing on expanding its customs union to the former USSR satellite states and then maybe further onto the Eurasian plate. It wants to take advantage of its natural resource position and the export dependency a lot of the former satellite states still have on it.

Ukraine was poised and ready to become a member state of the European Union, though it all smells now like a large bluff.  At the end of it all, it comes down to your largest trading partner. Ukraine does its trade with Russia a significant amount more than with the EU. Having then a bilateral agreement between the two, would significantly reduce export/import costs. Also most Ukrainians feel more Russian than European in culture, one thing resented by many of the eastern bloc is the European unity and fear of culture loss.

 

 

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Though behind these arguments lies the main reason. Russia has always dominated the energy supply of the eastern European sector, and Ukraine knows this too well. Vladimir Putin has also imposed heavy custom checks on Ukrainian imports creating losses in the billions in theory. Embargoes from chocolate to steel pipes were also imposed upon goods this year and Mr Putin goes further on this, with forwardly stating that the Customs union as a whole may impose high levies in order to protect the Union for EU goods possibly entering their market.

The Payoff for Russia is vast. Not only does it secure a competitive advantage of trade with the Ukraine and cuts off basically its trade relations with the EU. It further tightens its power over the former soviet state and overall makes it ever so more dependent on Russia.

Vladimir Putin is also winning powerful game with the EU over its diplomatic procedure. That in all the EUs democratic ways are rather pointless in competitive arguments, as even if the Ukraine in someways would prefer to be courting itself with the EU commission, it still has to get into bed with Moscow. But this is by far not the first major hit by Russian Bear: slowly but surely it is geographically taking back its land.

It is amazing the unfortunate though inevitable power that strategic reason can have in undemocratic environments, but it is a good example of how maybe technocratic procedures could eliminate these problems for the EU, as it battles several fronts. Banking unity, Soverigen debt restructuring, migrational issues and strategic economics.

Tata for now
G.E.

Bad US timing in Africa as Resource war is in full swing

As Obama makes his first real appearance in Africa, has he come far too late? As the president touched down in South Africa, he was greeted with more welcoming protests than the warmth he may have encountered on his trip to the G8 summit in Northern Ireland.

Africa itself is the new Jewel in the eye of slowing down major economies in the northern Hemisphere and where strategic economics may now work with African ways of life, which was unheard of back in the 80s-90s. Holding vast realms of natural resources and economies egger to grow, China has been making the most progress out of all nations, though has also been finding out, that Africa is not always easily bought and tapped.

Late jump from the gate

The Current Obama administration did not make an appearance in its last term, and through this the US has been living off the success of the Clinton administration’s duty free policy on African goods and the Bush administration’s poverty donations, though there is still nothing yet from Obama.

As he was escorted through Cape town in his usual armed battalion, including the support of the South African’s catalogue of Gorilla proof Jeeps, the president had come at a time of when millions of the continent’s inhabitants prepared for the mourning of Nelson Mandela, as well the general view of that Barak Obama “Another US President”. This comes from the Geo political position most south Africans see Mr Obama lying in. From the Libya Crisis and toppling of the Gaddafi regime last year, the involvement of more US drone aircraft in Africa and the current interactions and geopolitical moving in Syria.

Contractual ease by China

China has been conducting much more investment, as it saw the emptiness of foreign competition implementing strategy on the continent. China is finding it easy business doing deals in Africa, as a pragmatic position is taken for politics. There are no political improvements linked to any investment deal which may include a more stable government as some nations saw with previous western deals, giving much better political face to china.

Also with weak colonial might at the moment, no one is in the position to lecture China on its resource and foreign investment policies at this current time. Also with the increase of inflation in China, it is only be a matter of time until manufacturing is transferred overseas to Africa in order to reduce production costs.

Though making deals with Zimbabwe and Sudan hasn’t helped other sides of Chinese interests and shows more importance to business relationships than China’s social responsibility.

DIY Africa

The main issues with Africa are usually down to a few big factors where one or more is active:

• Political Corruption
• Civil Unrest
• Inadequate Infrastructure

The oil industry is probably the wisest of the high risks from African operations. Companies such as BP and Exxon Mobil have dealt with losing oil wells due to political tensions, such as in Somalia; workers being captured and ransomed off and the sabotage from local greed and jealousy, which is the most interesting one in my opinion.

In Nigeria a local communities jealousy over another that has a well contract from an oil firm, will usually result in pipes being cut, or well heads being set ablaze. The market for D grade black market oil is then created through tribal gangs stealing the unrefined liquid and in the meantime the environment being damaged. With Nigeria cultures you are taught not to share or help, so other communities do not work together. The only cooperative relationship that usually occurs is when cleaning companies pay gangs to destroy wells in order to get cleaning contracts.

Energy shortages are also a major issue. Known for its mass ownership of electric generators, Africa’s civil infrastructure is in desperate need of being created.

The Future

 

 

There are certain countries such as South Africa and Angola which provide a forward vision for the Continent, with maybe only one of the three issues being faced.

As the US ranks third as trading partner to the continent, it will be rather soon that more foreign direct investment moves swiftly in. This is also contributed to the the reduction in global market liquidity seen in the past weeks, on the basis of changing Central banking monetary policy (mostly from the US) and the predicted slowdown in emerging markets. Africa due to its minerals has not experienced a reduction in investment hunger so much and with still a very large gap in market capacity across the board of sectors from resource extraction to government development projects, whilst the northern boundary has the rope pulled tighter, the centre realms of the equator look promising, just how much for Africa and more so, how will the economic transition process effect Political engineering and efficiency? This issue brought up when Libya was still continuing in conflict.

 

Tata

G.E.

How to dismantle an atomic Eurozone, Putin Punches & Barrels of Black

After some weekend back pressure, Spain eventually retracted from their denial, they needed money.However... the speed in which it took, was like a bullet leaving a gun, when comparing it to the other euro-bailouts, which leaves our dear Gothic analyser in pondering. How long till the others start renegotiating their bailouts after Spain's easy cash injection?

The weakness of Europe couldn't be better portrayed this week as the value of currency continues to fall, as the markets speculate the eventual truth...The euro-zone will never be the same.

On Tuesday it was announced that the banks of Europe will now be interlinked into a european banking system infrastructure that could be complete by January next year, though that is to say that we will still be looking at the same Europe by then. The banking entwining is just an extra stepping stone in the pond towards the european fiscal union. But like so many european policies an extra stepping stone might just be delaying, the eventual splash and dampness of the ever so deep Stygian pond.

Taking a leap to Syria and we see the real site of Strategic economics and Geo-political heavyweights Russia, not leaving any breathing space and taking full advantage of gaining more political might in the middle east by the revealing of arms and now helicopter gunships support to Syria. This is nothing new for Russia to supply Syria even before the Arab spring uprising first began.

In a way it is an inevitability that Russia would do this, as it is in a current position of just turning into a fuel supplier if it were not to challenge itself to keeping the fight in its corner of the ring, plus with a troubled financial world it's the best time for Russia to do it's dirty deeds.

At the same time OPEC meets in Vienna to see what to do about the collusion oil breakers Saudi Arabia, that has continued to break its quota on oil production, though as markets predict economic slowdown. Mr Gothic economist can only say, that it could be in your interest to fill up your tank before the week is out, as Saudi Arabia will either reduce its supply; or the others will.

I had a befuddled moment of clarity, where I remember how god had created economists to make weather forecasts look good. In economics we can an only assume; and as a Gothic economist I can only assume the worst, Good day to all

P.S. Do not prithee peace, it shall not be soon!

What to do??

I had no idea what on earth to write about last week...There was too much to write about!! Instead I made a draft of my views last week which I did not finish.

So the world has turned into the rule of the bond market. If you want to know what happens, look at the rating agencies a few purpose done government leaks and the market speculation.

one day this week at 13.30 the rallying of stocks occurred on the DAX bringing it up by 3% percent within minutes. Though still peripheral pressure was implemented on Europe.

The worrying thing was that the Chinese Central Bank cut deposit rates for banks as the China markets closed negative, possibly showing a new landmine that could go off on the already fuel leaking world market.

Still I think one kind of cranky positive result that has come out this week so far is that the UK economy doesn't seem to be needing to fear the rating agencies for the time being only the Strike currently occurring which is seeing huge amounts of public Sector workers affect the growth of the UK economy.

2025...The period for nuclear & renewable energy

I'm taking a mini break from the EU as the Financial Times this week has been reporting on the nuclear debate going on around the world currently, after the Japanese earthquake produced our second largest nuclear energy industrial incident. Not only that I was also invited to attend an ecological economics speech yesterday where nuclear was condemned (as well as positive economics & monetarism which is really two my economic areas). So I thought about giving my opinion, mixed in with scientific facts.

We cannot smell it, feel it; though we breath it in, it tans our skin, it's in the food we eat; it is there and that is what radiation is, the invisible particles of life. It has been there all our lives, from the sun, the earth, from atomic testing to the medical industry, but why are we scared of it?

My main three points about why people are against anything with the elements, are nuclear waste and nuclear destruction, be it weapons or meltdown. Though I feel a lot of the science is left unspoken, and facts can be larger than words, so here I go at trying to balance out the atomic debate with some economics as well.

The Science
Background radiation is everywhere and the biggest contributor is Radon, which comes from decaying elements in rocks within the earth's crust. Radon is approx 50% of background radiation and gamma and beta from the same decaying in the ground is 14%. 12 % is internal, what this means is we are technically radioactive as we have carbon -14 inside us, not only that, but what we eat has C-14, radioactive potassium as well as other radioactive elements inside. The next is the Cosmic, that's 10% contributed by space.
So...we have approximately 86% of radiation today being non-man made.

Man Made Radiation
The biggest man-made contributor of radiation is the medical industry...12%.

Air travel contributes 0.4%, fallout 0.4% occupational 0.2% and nuclear waste <0.1 %. This is all by the way up to present day factual numbers, from the UN, NAEA.

• NAEA 

The Dangers
I really hate going into this topic as it is very sensitive for me on both sides valuing any loss in life is worrying area for me, but sometimes it has to be shown.
There have been many more and troubling disasters outside nuclear energy, the nuclear medical industry and other areas are much more worrying, here are examples:
http://en.wikipedia.org/wiki/List_of_civilian_radiation_accidents
My point here is that medical contributes more to background radiation, though we don't scrutinise x-rays, cat scans or cancer treatment?
And the horrible summary is that I have seen what oil has done to some poorest areas of the planet pollution wise in real life. We don't want to see it, smell it, touch it though we are addicted, that is what oil is for modern society and how many people have died due to it?

The Economics
My main concern is Germany's promise to scrap nuclear reactors by 2020. The funny thing is, to make up for that loss in nuclear, you have to build more coal fire power stations, which actually give out more radiation than a nuclear power station as well as carbon dioxide which then in turn goes in global warming. They are creating more wind farms and other renewable sources, but the energy production of wind turbine is so small, compared to energy demanded, it is an unrealistic approach and is very expensive contributor to the rise also in energy companies increasing their bills, as well as the price of oil being more susceptible to shocks and increasing due to demand and supply.
People right now and in future years cannot afford this until technology in the renewable sector improves and governments can afford to run deficits.

Conclusion
My goal is not to say we should be Nuclear forever, but when you have depleting highly demanded natural resources. A society which is going through depleted income, that will eventually have to pay more continuously for energy. A time where new nations demand more energy, and geopolitics becomes more powerful... To look away from Nuclear is really a scary mistake I feel.

Renewable energy is the future beyond a doubt, within 5-10 years we most likely will have fusion near perfected for power generation testing, and wind energy being actually cheap in a competitive market. That is where the future lies, but to jump on the green band wagon completely does not make sense from an environmental and economic point of view.