An opportune time to post what I wrote 1 year ago - When people disagree in regards an issue it is sometimes valuable to turn the debate on it head. For this I am using only UK government figures to avoid any accusation of using biased Scottish figures. Scotland has 8.4% of the UK population but contributes 9.9%. It receives 9.4 contribution in return, therefore Scotland subsidizes the RUK. (FACT, UK ONS and GERS, 2011-2012) On the lead up to the referendum there will be pressure on the pound. This is a major event and the markets will start to become nervous the closer to this date. The pound will start to devalue. In the event of a No vote panic over and the pound will stabilize. One day after a YES vote everything will change for the RUK. Overnight, the RUK will lose 9.9% of its previous economy, between 8.4 & 9.9% of its gold reserves and a minimum of 90% of future oil reserves, (between 1-4 TRILLION pounds), the greatest security policy that the UK has ever had. During my research I was astonished to learn that the UK, 6th largest economy in the world was only 17th in the world for retaining gold as security against currency and creditworthiness. What therefore is supporting this currency & credit rating? The UK has approx. 310 Tonnes forex gold reserves, France, a similar economy has 2435 Tonnes forex gold reserves. The UK situation overnight starts to become precarious. The loss of Scotland’s contribution will immediately increase the RUK debt/GDP ratio, whilst Scotland’s will decrease. (Higher debt repayments)The pound will then start to freefall, (higher debt repayments). To counteract this the RUK treasury will go to the markets to prop up the pound. They will have to issue UK gilts. The markets will then assess the RUK creditworthiness risk and demand higher returns on these gilts due to losses incurred by Scotland leaving and taking their legal securities, (higher debt repayments). The UK credit rating will be downgraded further increasing borrowing costs. The UK is currently servicing debt at a very competitive 3%. This may increase to 5 or 6% almost overnight, a fiscal nightmare for the RUK government To make the situation even worse, the RUK will at the same time be damaging their own economy further by causing additional costs to their businesses through cross border transactions and further increasing pressure on their fiscal position. No country can overnight take this hit without serious damage to their economy. It could be worse than the crash of 2008. My question to better together is – What steps can a RUK government take to avoid this potential catastrophe? I can think of only one but I am very interested in how they can mitigate this damage.
Posted on: Mon, 08 Sep 2014 06:09:21 +0000
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