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Old Gold, New Debt And Scottish Independance

Politics / Scotland Sep 10, 2014 - 10:48 AM GMT

By: Andrew_McKillop


A Deliberately Confused Debate
As I noted in a recent article, when or if Scotland separated from England and received its share of the UK's 310-ton official gold reserves, and its share of UK national or sovereign debt officially placed at a rather exact and reassuring total of 1410 billion pounds (about $2200 billion), Scotland's central bank would be the proud possessor of 26.35 tons of gold.

At present gold market prices this is worth about $1.7 billion.

Issuing an all-new and separate Scottish money on that basis would be nonsensical. We can note that Gordon Brown, who is highly active (and even emotional) in the “No” vote movement, has actually talked about this “threat to UK gold”! As UK Chancellor in 1999-2002 he sold off 400 tons of UK gold at 20-year-record low prices for gold! Not at all outdone by Brown, Alastair Darling of the “Better Together” movement says that as UK chancellor in 2007-2010 he personally saved “the banks”, during and after the 2008-2009 crisis, and in particular saved the Scottish banks RBS and HBOS.

The charge against Darling is a little less easy or stark than the one against Brown, and we have to bring in complicated things like “monetizing the debt”. In both cases of the ECB and the Bank of Japan, it is now being “monetized” using negative interest rates for effectively converting national or sovereign debt (or multinational debt for the ECB) into a tool for financing deficit spending by governments, and bailing out private banks by buying their “troubled and non-performing assets”.

Ironically, the ECB is expressly forbidden to buy government debt – so it buys private bank debt, enabling the private banks to buy government debt! That may possibly seem complicated to some people, but that is the trick or operation. The private banks, as we know, learned nothing and forgot nothing from the 2008 crisis and its sequels. They went on creating “derivatives and tradable instruments', based on dodgy or even imaginary assets which can instantly become liabilities, and did not forget who will automatically step in and bail them out – governments and central banks.

The debts of the private banks have been “governmentized” and the debts of governments have been “private bank-ized”. Finance professionals call this a seamless web.

So Alastair Darling did not “save the banks”. Like other finance ministers and the central banks of other countries this concerned and resulted in a massive increase of effective national and sovereign debt. The claimed official figure for UK national debt or its Scottish counterpart (supposedly 120 billion pounds or about $190 billion) are nonsense. We cannot exactly say what these debts are, either, but we can be sure they must be given a “multiplier” of at least 50 times, or more, when the “governmentized debt” of the private banks – masquerading under a national identity label when it suits them – are added into the incredible debt mountain.

This should be the real subject of debate in the Scotland-England gold and debt (and money) issue but for sure and certain it is not. It is too real and too “complicated” for people, including politicians and editorialists who prefer the “burning issue” of UK gold. If Scotland got its 26.35 tons, this would be roughly one-tenth of what Gaddafi's Libya had before 2011, before he and the gold disappeared!

Can The Scotland Independence Issue Spark a Global Crisis?
Both the 'Yes' campaign and the 'No' campaign are to blame for this. They have given totally false figures for the effective and real amounts of national and sovereign debt that exist – thanks to the private international banks calling themselves “national based and oriented” when it suits them.

Why should either English or Scottish taxpayers finance their debt? Their profits are private so their debt should be private. Isn't that logical?

Unfortunately this is nothing whatsoever to do with the real world, and especially since 2008.  This isn't an issue which dates only from 2008, either. The Founding Fathers of the USA, for example, sharply disagreed about whether their new country should have a central bank and what relations it would have with the government Treasury department, if it did exist. This especially concerned “the money”. How much of it should be produced? On what basis? By who?

In the Scotland-England so-called debate on so-called major issues, we have the pantomime of what money an independent Scotland could or would use. Why not print up a New Money for Scotland with images of whisky bottles or jerrycans full of North Sea oil? The New Money of England could be printed with the new bills carrying the image of an estate agent's sign outside the “bijou residences” of London, sold to potentates and oligarchs of oil-rich countries! But under no circumstances could either New Money be redeemable for metallic gold.

That is totally impossible.

The distorted debate on the Scotland independence issue and the gold-money-debt handle, is however dangerous because few ordinary persons, and it seems politicians, can understand the crazy logic of central bankers. For example, by monetizing debt more debt can be created, but financed more cheaply because, for a while at least, the process will drive down interest rates. For an individual or a small company (not the “Great Corporations”, whether they produce smartphones or iron ore), it would be akin to constantly increasing your borrowing – but paying less and less interest on it. 

Then we enter the crazy world of “NIRP” or negative interest rate purchasing of debt. You are paid to borrow money if you use it buy debt! The sole objective can however be guessed. Increase debt.

If Scotland does separate from England both countries will have to borrow more or a lot more. There will be, as they say, “major currency volatility”, which in the case of England refusing to allow an independent Scotland to use the GB pound, could get extreme. In this case, their debt will increase even faster. On theoretical grounds only, both countries could start entirely new currencies, and write down (some of) their debt using the time-hallowed tool of issuing deliberately undervalued moneys.

All this is conjectural, but if it happens the process will run very fast and out of control. English and Scottish politicians need to get real about the real issues.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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