tag:blogger.com,1999:blog-1623670757868380929.post4572018450076275297..comments2014-02-14T09:30:39.804-08:00Comments on Gradualis: A Tale of Two Countries: The Sectoral Balances of ScotlandGradualishttp://www.blogger.com/profile/10097884364677509808noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-1623670757868380929.post-53350921574227414322014-02-14T07:12:48.828-08:002014-02-14T07:12:48.828-08:00Ah the myth of the 'speculative attack'.
...Ah the myth of the 'speculative attack'.<br /><br />Given that the UK is the major exporter to Scotland, then a few 'liquidity swaps' from the Bank of England will provide whatever UK pounds are required to allow the export transactions to complete - leaving the Bank of England as the saver of last resort in Scottish pounds.<br /><br />And that's because the UK needs the exports - or people start losing their jobs!<br /><br />Anybody who believes that floating rate currencies are a 'free market' really needs to get out more.<br /><br />NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-91136856830456809232014-02-14T06:12:29.070-08:002014-02-14T06:12:29.070-08:00Perhaps you would care to check out today's po...Perhaps you would care to check out today's post on this issue for more information?<br /><br />http://gradualis.blogspot.ie/2014/02/scotlands-dependence-on-rising-oil-and.htmlGradualishttps://www.blogger.com/profile/10097884364677509808noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-47642308043861823402014-02-14T05:31:52.168-08:002014-02-14T05:31:52.168-08:00lsembard,
Sorry, we have yet to launch the main w...lsembard,<br /><br />Sorry, we have yet to launch the main website which will have all the details of our think tank. Hopefully it will be up and running in the next week or two.<br /><br />And, yes, we are well aware of the MMT and functional finance paradigms and are including them in our analyses.Gradualishttps://www.blogger.com/profile/10097884364677509808noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-77229664313869685162014-02-14T02:46:20.548-08:002014-02-14T02:46:20.548-08:00Mr. Gradualis (and friends), I reviewed your blogg...Mr. Gradualis (and friends), I reviewed your blogger profile but found little to enlighten me. I had hoped to learn about your background and motivations. I only learned that you are a secretive 'think-tank'. Frankly, a bad start.<br /><br /> From your analysis on sectoral balances, I am hoping you know something about MMT and functional finance? They might make you think more deeply about a fiat currency and the purpose of borrowing it from the private sector. Or not, if you have any mainstream economics dogma programming.Brochan Blastahttps://www.blogger.com/profile/17145217109969651260noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-17245529306200058332014-02-14T02:18:00.181-08:002014-02-14T02:18:00.181-08:00An interesting pair of graphs. I suspect however t...An interesting pair of graphs. I suspect however that, though volatile, the price of oil/gas can only go up, as there is little sign of any serious investment in alternatives.<br /><br /><br /><br />Brochan Blastahttps://www.blogger.com/profile/17145217109969651260noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-44102581896008436102014-02-13T14:45:21.576-08:002014-02-13T14:45:21.576-08:00"Imports decline if the price increases inter..."Imports decline if the price increases internally cause consumers to stop buying them." which is the other side of this "exporters reduced their trade with the nation " Both sides adjust/respond to the change in conditions. <br /><br />"Comparing Japan to Scotland is not viable because most of Scottish consumer goods are bought abroad."<br /><br />Which is the point I was trying to make when making the comparison and stating: <br />"Also the relationship between changes in the fx rate and inflation is a complicated one."<br />"There are other forces at play."<br /><br />You are describing some of those factors. <br /><br />As stated in my previous reply, I suspect the change in living standards over time after such an adjustment would depend on how Scotland adjusts internally. If Scotland adjusts by increasing domestic production of consumer goods which were once imported from abroad then living standards would not necessarily decline. This would lead them toward becoming less reliant on foreign manufactured consumer goods. <br /><br />If that is not possible, then I agree with you where such a move could very well result in a drastic decline in living standards. <br /><br /><br /><br />Rafael Barbierihttps://www.blogger.com/profile/01578692617118123417noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-46044977191701642222014-02-13T14:21:32.638-08:002014-02-13T14:21:32.638-08:00No. Imports decline if the price increases interna...No. Imports decline if the price increases internally cause consumers to stop buying them. It doesn't matter what exporters do. They have no control over this. It is a phenomena known as the "import elasticity of demand".<br /><br />As to the yen, inflation didn't increase because the majority of Japanese products are bought internally. Comparing Japan to Scotland is not viable because most of Scottish consumer goods are bought abroad.Gradualishttps://www.blogger.com/profile/10097884364677509808noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-8550204049594310882014-02-13T10:52:44.913-08:002014-02-13T10:52:44.913-08:00The Icelandic Krona and the Icelandic monetary reg...The Icelandic Krona and the Icelandic monetary regime still exists. As what happened to the Icelandic system in 2008, surely there were many forces at play internally and externally which caused conditions to shift. There is a difference between a currency collapse and an fx rate trading down (even drastically). The latter could lead to a total collapse in the monetary regime, but as your example points out it very well may not. <br /><br />Scotland's living standards would decline IF exporters reduced their trade with the nation (which isn't a certainty as seen in Japan which is running larger trade deficits after the yen has traded down) AND if Scotland failed to adjust to this outcome overtime. If FX rate declines to the point where exporters reduce their trade, but the Scottish system adjusts by improving and developing a vibrant domestic economy, the situation may very well improve over time. <br /><br />Also the relationship between changes in the fx rate and inflation is a complicated one. The Yen has declined over 20% relative to the dollar since 2012 and the rate of inflation has barely picked up. There are other forces at play. Rafael Barbierihttps://www.blogger.com/profile/01578692617118123417noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-24435651133864708422014-02-13T10:21:28.754-08:002014-02-13T10:21:28.754-08:00Rafael,
The currency collapse with those magnitud...Rafael,<br /><br />The currency collapse with those magnitudes of deficits weighing on a brand new currency would likely look something like the Icelandic krona after the 2008 crisis. You'd likely see a devaluation of between 30% and 50% and the inflation caused would be enormous. Likewise, since Scots rely on imports for consumption their standards of living would also fall drastically.Gradualishttps://www.blogger.com/profile/10097884364677509808noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-25704690807837383852014-02-13T10:16:44.708-08:002014-02-13T10:16:44.708-08:00There would likely be a speculative attack on the ...There would likely be a speculative attack on the currency market as in the currency would trade lower relative to other currencies? By itself, that hardly constitutes a collapse of the monetary regime. <br /><br />Also the effects of the decline in the fx rate on trade patterns are not nearly as straight forward as you presume them to be. Take a look at what has occurred between the Japanese trade balance as the yen has traded lower since the shift in the policy stance.<br /><br />Exporters are never in complete control of a situation. They can only influence or react to such shifts in the fx rate. Like, Neil state, exporters still have the choice in determining whether it makes sense for them to continue to export to Scotland in exchange for balances denominated in Scottish pounds. If exporters don't want to run/hold these balances, this would mean they would reduce the degree in which they export to Scotland. This in itself reverses the trade deficit which you seem to worry about. <br /><br />As for a currency collapsing under the weight of public and trade deficits (both of which are linked to one another), these balances are outcomes which result from decisions taken by a confluence of entities. The numerical balances in themselves don't lead to collapse. There is usually much more going on when such disruptions occur. See what is happening in EM now or in cases of past hyperinflations. Much more going on. Rafael Barbierihttps://www.blogger.com/profile/01578692617118123417noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-29940466244748716422014-02-13T06:36:29.452-08:002014-02-13T06:36:29.452-08:00Given that the Scottish pound would be a new curre...Given that the Scottish pound would be a new currency if there were enormous trade and public sector deficits there would likely be a speculative attack on the currency in the foreign exchange markets.<br /><br />Exporters selling to Scotland would have no control over this.Gradualishttps://www.blogger.com/profile/10097884364677509808noreply@blogger.comtag:blogger.com,1999:blog-1623670757868380929.post-33210750209377788142014-02-13T06:14:35.390-08:002014-02-13T06:14:35.390-08:00"the currency would likely collapse under the..."the currency would likely collapse under the weight of enormous public sector deficits and trade deficits."<br /><br />Why? Where else are the exports to Scotland going to go?<br /><br />The exporters to Scotland will need to start saving in Scottish pounds or they simply won't be able to sell their wares there. <br /><br />When the Euro 'collapsed' against the Swiss Franc, what happened?NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.com