Cock-Up versus Conspiracy
I’m assured by Lynn Henderson, president of the Scottish Trades Union Congress and a Labour Yes supporter, that the STUC was not approached by the SNP’s Sustainable Growth Commission for discussion and input, before the publication of the Commission’s report last May. Equally, I’ve been assured by Keith Brown, the SNP’s depute leader, that the Growth Commission did approach the STUC for comment.
I think we are in cock-up territory here, which is very regrettable given the importance of the Growth Report. Regardless of where any culpability lies, can I suggest that someone involved with the Commission do some serious fence-mending; especially so because the Report is so deficient regarding the operation and reform of local labour markets.
October has an eerie reputation for bringing meltdowns in global stock markets. The infamous Wall Street Crash of 1929 began on ‘Black Thursday’, October 24. Then there was the global stock market crash of 19 October 1987. This saw the largest ever one-day decline in the US Dow Jones, of nearly 25 per cent. The one-day drop in the UK FTSE 100 in October 1987 was even bigger, at 26.45 per cent.
Which might explain why this week’s jitters on global bourses have set aflutter the hearts of traders and investors – particularly after a whole decade of absurdly high stock values driven to crazy heights by central banks printing money (aka Quantitative Easing). The good news (if you’re a stock holder) is that the October 2018 drop is nowhere near as precipitous as those earlier massacres.
By lunchtime this Thursday, the FTSE was down 1.7 per cent – significant but hardly a crisis. Ditto markets in Asia which dropped to a 19-month low. US shares also suffered their worst losses in eight months. What gives?
A number of factors are making sellers trigger-happy. For starters, no-one believes share prices can stay this high for so long. Buying shares is a form of gambling, even if folk pretend otherwise. If everyone buys, the price rises. But someday the tide will turn and the last equity fund to purchase will be left holding a worthless parcel of stock.
Secondly, there is the Trump factor. A fear of trade wars – not to mention possible hot wars following in their wake – is making global markets very jumpy. Stir in some Brexit and the political situation is dire.
Third, central banks want to raise interest rates back to their historic norm, to kill inflation and ease companies and consumers away from acquiring yet more unsustainable debt. But raising rates brings a tsunami of unintended consequences. It increases the real burden of company debt, threatening profitability. Plus it kills consumer confidence. Result: on Tuesday, the IMF cut its global growth forecast from 3.9 to 3.7 per cent in both 2018 and 2019, triggering the share selling.
I don’t think the ultimate sell-off will come this October. China is doing a reverse-ferret and easing credit to stoke up growth. And Trump is brow-beating the US central bank to going easy on those interest rate rises. My bet would be on 2020 for all hell breaking lose. By then the US economy will be overheating to the point of meltdown, the trade wars will be vicious, and interest rates will really take off. Let’s hope Scotland is independent by then and able to control its own economic destiny.
More on Money and Banks
Speaking of which, I’ve noticed a new argument being manufactured by those folk who back the Growth Commission’s conservative resistance to creating a Scottish currency. They claim that setting monetary policy (i.e. interest rates) in Scotland is no longer important in a globalised world, especially if you are a small country. Fiscal policy (i.e. borrowing and spending) is much more strategically crucial.
It’s true monetary policy is less important than it was a decade ago. But only because interest rates are at near zero. But the era of low interest rates is about to end. One reason central banks want to raise interest rates is precisely to restore monetary policy as a tool in the face of a coming global recession. Leaving Scotland’s economy to the mercy of a Bank of England set on raising rates is not independence.
Suppose we do have independence without a Scottish currency. I have news for currency sceptics: your room for fiscal manoeuvre will disappear along with monetary policy. Having a domestic currency means a Scottish central bank can pump liquidity into the local banking system at will, boosting lending in a recession. But without a domestic currency, a Scottish government will have to squeeze the taxpayer directly, to refinance any local bank that gets into liquidity problems.
A Scottish government trying to spend its way out of a global recession, if it has to borrow in sterling from the City of London, will be ordered to implement austerity by its foreign creditors. Be warned: independence without a currency is independence without power.