Alex Salmond arrives to take part in a live television debate with Alistair Darling at the Royal Conservatoire of Scotland in Glasgow earlier today. Photograph: Getty Images.
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Alex Salmond vs. Alistair Darling: live blog

The Scottish First Minister and the Better Together chair go head-to-head in Scottish independence debate.

22:00pm As I expected, the viewers are giving it to Darling. A post-debate Guardian/ICM poll puts the Better Together chair ahead by 56 per cent to 44 per cent. That's almost identical to the No campaign's current poll lead. 

21:44pm Salmond calls for a vote for "ambition over fear" and says independence would allow Scotland to turn its "prosperous economy into a just society". No one can govern Scotland better than the Scottish people themselves. "This is our moment," he ends, "let's seize it". 

21:41pm Closing statements now. Darling warns that "if we vote to leave, there is no going back", adding that Scotland can have "the best of both worlds": a stronger Scottish parliament and the Union. He denounces the "guesswork, blind faith and crossed fingers" of the Yes campaign. 

21:37pm The debate moves onto pensions. Darling says that Scotland's rapidly ageing population means it would need higher immigration to sustain the current system. 

21:31pm Darling says it is up to the Scottish parliament which services are free and that public spending could remain higher than the UK average. Salmond says Scotland cannot continue to bear "hand-me-down cuts" from Westminster, highlighting the cost of scrapping the bedroom tax. 

21:27pm In response to an audience question, Salmond insists that an independent Scotland could maintain free higher education and free prescriptions. But Darling rightly responds that it would become illegal under EU law for the government to deny free university education to non-Scottish students from the rest of the UK. 

21:26pm Salmond denounces Darling and his predecessors as Chancellor for failing to set up a sovereign wealth fund for oil. 

21:21pm On austerity, Darling says that his 2009 Budget "did more redistribution to people with lower incomes than any other in a generation."

21:14pm Darling says the UK cannot be expected to underwrite a banking system that is 12 times the size of Scotland's GDP. Salmond hits back by noting that Darling was charge of financial regulation "when the banks went bust". He adds that the rest of the UK government would never allow RBS to go under. 

21:13pm After repeated criticisms from the audience, Salmond refers them to "page four of our Fiscal Commission report". He'll have to do better than that. 

21:08pm Another audience member to Salmond: "You haven't given us a straight answer ... What is your plan B? We need more than 'it'll be alright on the night'". 

21:06pm The first question, from a No voter, without a currency union would Scotland use the pound without the permission or is there a contingency plan? Salmond replies that he wants what's best for Scotland, Darling says a monetary union requires a political union and a fiscal union. 

21:01pm Before the second half, they've just cut to the spin room again. With his forensic questions on the currency, Darling had the best of that round, with Salmond's attacks rather esoteric by comparison. Audience questions are next. 

20:56pm Salmond repeatedly presses Darling on whether he agress with David Cameron that Scotland could be a "successful independent country". Darling replies that he has never said that Scotland couldn't go it alone, but that the risks aren't worth it. 

Salmond repeatedly mentions Cameron's name, desperately trying to tie Darling to the Prime Minister who shunned a debate with him. 

20:52pm Salmond asks why some of Darling's allies in the No campaign, such as Foreign Secretary Philip Hammond, support EU withdrawal. Darling replies that parties will take different positions on that issue, joking that he and Salmond could find themselves on the same side. The biggest danger for Scotland at present is leaving the UK, he says. Salmond replies that independence is the only way for Scotland to avoid the threat of EU withdrawal. 

20:50pm Darling ridicules Salmond's belief that Scotland would easily win EU membership: "The one thing you can't accuse the EU of is moving at speed". 

20:48pm It's Salmond's turn now. He asks Darling why the No campaign refers to itself as "Project Fear". It doesn't, replies Darling. 

20:45pm The debate moves onto public spending. "We have to end austerity," says Salmond. When Darling replies by pointing to the large deficit Scotland would face, Salmond responds by reminding him that the UK's deficit reached 11 per cent when Darling was Chancellor. 

20:42pm Darling: "So plan B is to scrabble around using somebody else's currency. That's not independence, that's foolishness of the first order." Salmond replies by referring to the report in the Guardian earlier this year that a senior UK minister believes Scotland would be offered a currency union if it voted for independence. 

20:39pm Darling runs through the alternative options: would Scotland adopt the euro (which, as he notes, Salmond used to favour)? Would it create a new currency? Salmond says Scotland will keep the pound as that's "best for Scotland and for the rest of the UK". 

Darling responds: "but you won't have a central bank ... you can't seriously be saying this. Scotland can't uses somebody else's currency." 

20:36pm Boos from the audience as Salmond refuses to answer Darling's repeated question: "what is your plan B?"

20:33pm Darling rightly points out that Salmond's stance would leave Scotland with no lender of last resort (the Bank of England at present). 

20:32pm After an ad break, the debate is back. Darling and Salmond now have 12 minutes each to cross-examine their opponent. 

Darling starts by challenging Salmond over the currency: what's his plan B if he doesn't get a monetary union? Salmond says an independent Scotland would continue to use the pound without permission (rather like Panama uses the dollar).  

20:25pm After much searching, I've managed to find a working stream at http://zattoo.com/watch/stv

Highlights to folow. They've just cut to the "spin room".

20:06pm The demand for the debate appears to overwhelmed the STV player, which immediately crashed at 8pm. I'm trying to find somewhere else to listen to it, but for now this only further proves why it should have been televised. 

19:47pm After months of waiting, Alistair Darling and Alex Salmond are finally going head-to-head in debate. The encounter isn't being televised outside of Scotland, but non-Scottish viewers can watch it live on the STV player. I'll be live blogging the highlights from 8pm. 

George Eaton is political editor of the New Statesman.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?