Pulaski

Sorry, I over simplified what I wrote. But there is some practical limit on how much a country can borrow to fund spending.

dunroving

OK, so the fact that iScotland would likely have either had to join the Euro or tie their currency to sterling would have worked against this?

Re: your previous post, were you essentially saying if a country is earning enough (GDP), it can run a deficit because it can service its debt ...? (still not sure how controlling your currency comes in - via being able to devalue/promote inflation, thereby reducing the relative size of the debt?)

Economics is like Latin to me.

scrubbedexpat099

Join the Euro and unless you are France you have limits to how much you can over spend.

Theoretically.

Own Currency and you can print what you want, see US for example, until people lose confidence, see Germany after WW1, or UK after WW2, Export or Die etc.

Giantaxe

Cuts to the UK's bloated welfare bill are long overdue. I'm no big fan if this Conservative government, but I certainly give them credit for attempting to tackle this issue.

And, yes they do have food banks in Germany:

http://www.spiegel.de/international/...-a-941661.html

RoadWarriorFromLP

The economy basically consists of a bunch of people who pass money around to each other. When we pass it around at a decent clip (but not to excess), then times are good and we keep each other afloat.

But when the economy goes into recession or depression, people start hoarding, which hurts everyone who depends upon that money being passed around (which is to say, most of us.)

There are two basic areas in which the government can help to influence the degree to which we pass this money to each other: fiscal policy and monetary policy.

Fiscal policy consists of spending and taxation, which comes from the legislature. In a recession, governments typically cut taxes so that consumers and businesses have more money, which we would hope that they use to spend and invest our way out of it. Government can also give people money and benefits (such as unemployment benefits) which add to spending power, or create stimulus (i.e. infrastructure spending.)

But that will probably require deficit spending. The inability to run deficits interferes with the pace of recovery.

Monetary policy comes from controlling ones money. This is managed by a central bank, not by the legislature. The central bank can use the money supply to lower interest rates, which should also help to stimulate the economy by making borrowing cheaper. Or if there is too much debt, the money supply can be increased in order to create inflation, which effectively lowers the price of paying down/off the debts.

This power is needed if one is to run deficits. As noted, this is an important tool for fixing most recessions.

Without control over the central bank, the whole thing becomes a lot more difficult. Not only is there no way to control monetary policy, but the fiscal component gets harder, too.

For example, it would have helped Greece if the ECB had started using quantitative easing to push more money into the economy. But because the Germans get to call the shots, they used a policy that they preferred for themselves. Hence, the Greeks suffer at the pleasure of the Germans, yet there isn't much that the Greeks can do about it. If they had still had the drachma, they could have gone into inflation mode, tamed their debt by inflating it away, and probably been better off than they were with austerity.

If Scotland kept the pound, then it would be hard to call that "independence" in the strictest sense of the word. All of the shots would be called from London, unless they made some agreement governing how the Bank of England would operate. Ditto for joining the euro, and it should be clear to everyone by now that it isn't a great idea to let the Germans run the central bank for anyone who isn't German.

If that still sounds like gobbledygook, let me know.

Steerpike

Why does the 'rate' of money movement matter? Obviously it generates more fees for transactions, but I can't imagine that is a big factor.

RoadWarriorFromLP

I wasn't being literal, but GDP can be expressed as money supply X money velocity.

I wasn't referring to a price, but to the amount of economic activity. Too little activity is deflationary; too much is inflationary.

neilcumming

Its ironic that the tories created the problem and they are some kind of white knights coming to the rescue,its pathetic.
I will have to check with my german friend here if he can give any info on the food banks.

Pulaski

The Tories created the bloated welfare system? A large amount of the bloat was created directly by Gordon Brown, who just happens to be Scottish. ..... Oh, and not a Tory, at least not the last time I checked.

Sally Redux

Maggie did put a lot on disability, to bring down the number of unemployed.

Hotscot

One could suggest, that in Scotland and Northern England, she put a lot of people on unemployment benefit.

Sally Redux

Yep, bloated times.

Giantaxe

That was always the claim. It seems the story was more nuanced:- disability benefits were higher than unemployment benefits, so there was an economic incentive to claim one was disabled.

Sally Redux

The story was that people were strongly encouraged to claim the disability benefits, to the point where there were/are towns with a very high proportion of such claimants. I think there was some truth in it.

Giantaxe

So there was an incentive on both sides:- on the government to "massage" unemployment figures lower; on the recipient side, to get more money by being "disabled".