The economy of an Independent Wales.

Wales wealth, How to get it. How to spend it ?

Wales currency and how to get the money to start?

In earlier posts, initial , but not comprehensive areas were identified to kick start the Wales economy and grow its wealth. 

Energy, research, development and innovation, together with technology and skills training were targeted for initial areas of investment.

In addition, public services and affordable housing were also prioritised as necessary for the nation's welfare and to start the improvements to the public well being.

The choice of these areas is not to minimise the importance of issues such as the environment, state pensions,welfare, taxation changes and more.

As we shall see the money spent in the identified areas, does not exclude spending elsewhere.

The new Plan for Wales is not based on outdated policy thinking.

Wales currency.

Wales will have its own currency.

In spite of some additional costs, transaction costs as we have seen. The advantages are significant.

Without its own currency, Wales will not be truly Independent.

Using another nation's currency, deprives its government of the means to control its economy.

It will be unable to use monetary levers such as interest rates and money supply measures and will be restricted in raising finance.

It will be without a central bank and subject to the policies of the currency issuer and look where that has led us.

There are supporters of Independence who argue to retain the pound until Wales economy is strong.

The problem with that argument is that the restrictions of remaining in that relationship, prevents the Wales economy from growing, to the extent that judgements as to when is the right time, would remain uncertain..

Most importantly Wales having its own currency is central to the Plan. The Plan to release Wales' potential wealth.

Without it, there is no Plan and Wales remains dependent.

Where does Wales get the money to start and what part does the currency play.

The details of areas of the New Wales economy will be for later, particularly those identified above, however before the benefits are seen where do we get the money to invest.

An overall commitment of £31 billion was identified, although we shouldn't regard this figure as any kind of limit.

Suffice to say that Wales will need a great deal of money from the beginning, to realise its aims.

A big number. A frightener for the present government. An impossible number many would say. 

That's because the economic approach to date and the financial narrative has restricted wealth creation.

What being part of the UK should have taught us is to stay away from their economic principles.

The present state of the UK economy is testament to the failure of that approach, policy decisions based on economic theories, often many decades old.

Theories, some the economic equivalent to the Flat Earth Society. 

Theories that have failed to acknowledge the significant economic changes that have taken place over time.

Economic theories that preceded the fall of the gold standard, when currencies were pegged to the price of gold.

Policies linked to the economic thinking that failed to move, when President Nixon removed the link between the dollar and gold ending the general fixed exchange rate.

Thinking embodied in Prime Minister Margaret Thatcher's statements that The government must budget like the family and The government itself, does not have any money to spend.

This thinking has guided the UK [ and others ] economic policy making to this day.

We must have tax revenue before we can commit to spending.

Oh, I nearly forgot, If we borrow, we are mortgaging future generations, so it goes.

Well no generation has yet suffered from a government budget deficit. They have however suffered from policies engendered by the thinking associated with it.. 

This philosophy has resulted in austerity, poor public services and poor economic performance and is misguided.

It has an attraction, in that the public can relate to it, They have to run their households that way.

It is used by politicians to defer from policies they are ideologically opposed to, persuading the public that the country can't afford it.

Our Plan doesn't follow that line. 

It is not based on economic theory or political ideology.

It is based on the way the monetary and fiscal system really works.

Our spending plan and any ‘ deficit ‘ associated with it  rather than mortgaging future generations, should more accurately be described as investment in the future.

Wales in Independence, is a sovereign nation with a sovereign currency. It can raise all the money it needs.

It can, in the same way that the US, Japan, UK and other countries with a fiat currency [ a currency backed only by the nations promise, and ability to support it ]

No tax raising or public spending cuts necessary..

This is how we do it.

Wales needs to raise the money to start the Plan.

Money for the energy production program.

To make the improved payments to the public sector workers.

Investment in research, development, skills and technology.

Money to finance the increased affordable housing program.

Money for infrastructure investment and environmental improvements.

So Wales issues  its government bonds in sufficient quantities for its  needs.

It decides the interest rate it is prepared to pay on those bonds. 

Favoured institutions, typically the major banks, are invited to bid for those bonds.

Those favoured bidders would then sell them on to hedge funds, pensions funds and institutions  and individuals seeking safe havens for their money.

And Wales bonds will be a safe haven. It is a sovereign currency, able to guarantee payments on those bonds. It can if necessary through its Central Bank produce the money to do so.

It happens all the time. Nations with their own currency raising large sums of money

The UK, with over £2.5 trillion of debt, is able with ease, to raise over £400 billion associated with Covid spending.

It raised over £78 billion for energy support due to the international energy crisis.

It raises significant amounts for infrastructure projects such as the anticipated £60 billion cost of the HS2 rail project.

For all these it doesn't have to wait until taxes come in, it just comes up with the money.

They are political, not economic or financial decisions.

So Wales sells government bonds.

Aah, but what if they are not all sold, after all Wales is a new nation with a new currency

In that very unlikely scenario, government bonds are always in demand, [ Argentina, with inflation at 110%, could still raise money through bond sales ]. The Wales Central Bank would buy them.

It buys the bonds and gives the government the money. As easy as that.

And as the Central Bank is wholly owned by the government, there is no fear of the bailiffs knocking the door..

That's the way the financial world works.

The mythical narratives of limits to spending and the international financial systems mores, are designed by the rich countries and financial institutions  for them to stay rich at the expense of poor countries staying poor.

Government policies restrained by the ' financial rules ' made by the very institutions whose reed and mismanagement has led to the economic problems presently being experienced.

The institutions, whose government bailouts have led to much of the nations debt.

The institutions, banks, financial traders and even the rating agencies, should, given their own failures, be the last to lecture the public and their governments on how to run their financial affairs.

The fear of debt, but the nation is not like the household. 

Unlike the household the nation with a sovereign currency can sustain debt. It always has the money.

The fear of the budget deficit.

But it's the government's budget deficit, not the nations

Look at it this way. The government's deficit is the non-government sector's surplus.The general economy has extra money because of it.

Conversely, if the government has a budget surplus, it means it has taken money from the general economy.

So the government budget deficit should not be a concern. It's an accountancy exercise.

Government spending to reach that deficit, if spent wisely, is the country's gain.

The politicians of the new Independent Wales are not financial experts, bankers or accountants, so their focus should be, not on balance sheets but on outcomes.

Not the colour of the ink on the government balance sheet, but is their policy decision, particularly spending, having the desired outcomes.

Their guiding principles should be, Are their policy decisions leading to improving the economy, increasing the nation's wealth, improving public services and the wellbeing and welfare of the people?

That's their focus and priority.

As for the balance sheet, that's for the accountants with their coloured pens and bottles of Tippex.

The raising of finance in this way is not however limitless.

There is a cost, interest to be paid,Typically approximately £300 million pa, for each £10 billion raised, however this will be seen to be insignificant compared to the benefits of the policy.

The second restriction is that the finance must be raised in Wales own currency. It is the only currency which they uniquely produce and can therefore guarantee. 

The alternative is that the Central Bank must hold more foreign currency reserves or gold.

The third is inflation. If the government irresponsibly injects too much money into the economy, it risks inflation.

Too much money, too few goods and services, Inflation, rising prices, everyone's enemy.

Under the Wales Plan, those fears will be unfounded.

Wales, with its stagnant economy and generations of under investment, will absorb a considerable financial injection before it reaches the full employment of labour and resources, the tipping point of inflation.

It is also the case that under the Wales Plan, government spending will be managed and targeted. As previously outlined, to areas of maximum economic and social welfare benefit.

Too often, our experience of government ‘ borrowing ‘ has been to finance a crisis. To support the banks in the financial crisis, covid support measures, or support during the international energy crisis.

Our Plan is designed to build a Wales economy and infrastructure able to withstand those crises.

Whether it be self sufficiency in energy, health and social care equipped for future pandemics, or a strong economy to withstand international financial shocks.

It aims for an economy that builds the wealth to finance the ambitions of Independence. 

So we have the means. Lets release the wealth.

Next up.

Wales' abundance of energy. And its part in the economy.

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