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Whereas my feature articles and public presentations provide a view of my longer term economic analysis, and my blog entries intermediate term, those interested in my very short term reflections on the US and global economy may find my twitter account remarks of interest. The following are my twitter entries for the month of March, 2014 (join me on twitter for future remarks, available on this blog’s sidebar).

MY TWEETS FOR MARCH 2014:

#China So goes German economy, so goes Europe! But so goes China economy, so goes Germany. Will China slowdown mean Eurozone stagnation?

#QE As US ‘tapers’, is global QE dead? No. QE2 in Japan inevitable + new Eurozone banking union & deflation=coming to Europe as well-in 2015

#Germany While Obama-US worry re. German-Russia trade now at $100 bil., China visits Berlin to expand German-China trade already at $200bil.

#Ukraine Read my analysis of details of IMF-Ukraine package terms at my blog at http://jackrasmus.com

#Ukraine Is Obama-Putin deal in the making? No NATO in Ukraine(yet); no invasion of eastern Ukraine(for now); keep fascists out of new Govt

For my analysis of today’s 3-27 IMF Deal on the Ukraine read my ‘Ukraine’s IMF Deal Means Greece-Like Depression’ at http://jackrasmus.com

US housing starts (investment) falls 3rd consecutive month + new home sales flat or falling for five months =more US real investment decline

US capital investment spending drops -1.3%, vs. consensus forecast of 0.5%, more indication of slowing global investment and future growth.

Eurozone QE is now inevitable, as German Central Banker, Wiedmann, signals OK if drift toward deflation continues (also inevitable).

Rumor of China new stimulus-more infrastructure spending & money injection. Same larger package didn’t work ’13, why should it work in 2014?

Emerging markets betting on yet another China stimulus to offset its slowing economy. Will it come? 60-40 says ‘no’.

China manufacturing declines again, for sixth consecutive month. Eurozone continues to choke on Ukraine crisis. Emerging markets churning.

#Ukraine. My ‘Alternative Visions’ radio shows of 3-22 and 3-15 on Ukraine economy are archived for download at http://www.alternativevisions.podbean.com

#Ukraine. For more on analysis of Ukraine economic crisis, listen to my weekly ‘Alternative Visions’ radio show at PRN.FM
#Ukraine economy.

For my in-depth analyses of Ukraine economic crisis, see my ‘Who Benefits, Who Pays?’ at website http://www.kyklosproductions.com

History will show Obama biggest foreign policy blunder:let US Neocons drive US policy & US lend support to proto-fascist led coup in Ukraine

Growing possibility that Ukraine crisis, if continues, will push Eurozone into its ‘third dip’ recession by late 2014. Odds = 50-50.

Euro to rise as money flows into currency from China’s central bank,from emerging market capital flight, & EU businesses move to sidelines

Eurozone negatives growing–Ukraine crisis worsening, Euro rising, Draghi refusing to intro QE, and China, Germany’s biggest export, slowing

Is US heading for faster ‘disinflation’ (or deflation later?). Producer prices fall 0.2% in Feb. and rise only 0.9% for year.

#ChinaEconomy. Global markets plummeting today on China econ news. Want to know why I predicted it weeks ago? Go to http://www.alternativevisions.podbean.com .

#Ukraine Big Italian Bank, Unicredit, posts record losses and lays off thousands. Unicredit among biggest EU banks with exposure toUkraine

Breaking news: CIA charged by Senate with spying on Congress and secretely deleting 800 pp. of Congressional documents from Senate computers

#ukraine. Deep causes behind Ukraine crisis-USA nervous Germany/EU growing gas/oil ties to Russia. USA wants to export its gas to EU instead

#Ukraine crisis will turn violent, stopping fragile EU recovery in its tracks. ECB (aka German central bankers) won’t intro QE
US ’13 GDP growth based on false inventory surge now waning.

Credit based US consumption not sustainable. Rising gas/food prices=further hit
Latest Japan GDP growth comes in below forecasts by government and experts.

More evidence of slowing global economy.
Confirming my prediction China’s slowing economy: Feb. -18% record fall in China exports. See my 3-1-14 radio show http://alternativevisions.podbean.com/

Re US Economy, when economists have no real explanation (and politicians want to hide the truth), they always turn to ‘Weather Metaphors’

As Japan real economic growth slows (now 1%), watch for second round of QE2 (deja vu the Fed circa 2010-11 anyone?)

As Eurozone drift to deflation continues (assured with coming Ukraine bailout and Russia sanctions), the ECB will introduce version of QE

US business press now raising idea of a China ‘Bear Stearns’ moment, as defaults loom in wake of debt and asset bubbles

Ukraine foreign exchange reserves being depleted $4b per week. Only $12b left. Will EU and US ‘backfill’, or will currency collapse before

ALTERNATIVE VISIONS RADIO SHOW, April 5, 2014
Progressive Radio Network, NY

“Alternative Visions Radio Show host, Dr. Jack Rasmus, and guest discuss the buildup toward a coup being prepared by US and its business-right wing friends in Venezuela today. Jack’s guest is longtime union activist, Alan Benjamin, who works in the International Labor Office in Geneva, Switzerland, with access to information globally on the Venezuela situation. Benjamin provides an eye-witness view of contemporary events in Venezuela, based on his frequent direct contact with unionists on the ground in Venezuela in recent weeks and days. Jack and Alan discuss the current relationship of political forces today in Venezuela, including the various alignments of classes there, political parties, union organizations, students, US sponsored and funded NGOs, small business v. large businesses, small farmers and peasants, and splits within the military. Benjamin explains the history of US coup attempts in Venezuela and Latin America in recent decades and parallels with recent events in the Ukraine coup. Who is behind the recent killings in the streets? What are the splits within the anti government right wing forces, as well as within the government itself? What are some of the USA’s current various plans (‘A, B, and C’) to destabilize Venezuela along multiple fronts? These and other related topics are addressed—in this ‘fact-based’ exploration of what’s happening in Venezuela today.

Alan Benjamin is a long time member of the Office & Professional Employees Union in the U.S. and its delegate for a number of years to the San Francisco Central Labor Council, AFLCIO. He is a member of the coordinating committee of the ‘Labor Fightback Network’ in the USA, and has been involved in numerous undocumented US workers’ organizations defending US immigrant workers rights, as well as active in organizations defending US students from government education spending cutbacks.”

This show is available at:

http://prn.fm/category/archives/alternative-visions/

and at:

http://www.alternativevisions.podbean.com

Alternative Visions – US Health Care Costs Again Rising–Not Slowing – 3/29/14

This hour-long interview and show is accessible at:

http://prn.fm/category/archives/alternative-visions/

SHOW ANNOUNCEMENT:

“Dr Jack Rasmus welcomes as his guest, Tom Moore, a nationally known expert on health care costs with 30 years experience in medical cost analysis in government and as a consultant, to discuss rising health insurance premiums and costs today in the US. Jack and Tom discuss why health care premiums and deductibles are again on the rise, and projected to escalate at double digit annual rates further in 2015 under Obamacare. Dr. Rasmus notes the sharp contradiction between national consumer polls and surveys that show health care insurance premiums and deductibles rising again at double digit levels vs. government and Obama administration reports that claim total healthcare spending in the US is slowing. So what is it? Are personal out of pocket costs rising and about to escalate even more—or are the government reports of total healthcare spending slowing correct? Are health insurance companies, that have become big finance companies expanding worldwide, about to rip off the US public again with double digit further premium and deductible hikes once Obamacare is implemented? What can you expect in coming months. Jack and Tom discuss the details and the real data.’”

Guest Tom Moore, Jr. is the co-founder of Community Campaigns for Quality Care and serves as its Board Chair and Chief Financial Officer. He brings over 30 years’ experience in health policy and program management, having held major federal and state government positions including the Director of California Department of Social Welfare, Director of the Office of Legislation for the U.S. Public Health Service, and Deputy Director of the California Department of Health Services for the Prepaid Health Plan program in Medi-Cal. Tom was also a Senior Health Policy and Program Consultant to the California Health Care Coalition, where he represented CHCC members on the board of the California Hospital Assessment and Reporting Task Force (CHART), recognized as a national model for health care quality measurement and reporting. He has consulted with the International Longshore and Warehouse Union and the California State Council of the Service Employees International Union on health benefits, including serving as SEIU’s liaison to CalPERS. Working with his CCQC partner, Sally Covington, he has participated in development of projects to identify and improve questionable variations in utilization of clinical services in Montana, Oregon, and California and currently supports delivery system improvement projects with IBEW L1245 (Northern California).

Today, March 27, 2014, the IMF released the broad outlines of its terms and conditions for loans and other measures for the Ukrainian economy. What those terms and conditions mean is less a rescue of the Ukrainian economy than the onset of a Greece-like economic depression for the Ukrainian populace.

Ukraine’s economy had clearly entered a recession, its third since 2008, sometime in the latter half of 2013. Some recent estimates of the likely contraction of the economy in 2014-15 have ranged from 5%-15% in GDP decline.

The ‘IMF Standby Agreement with Ukraine’ text released March 27, acknowledges the current severe economic instability of the Ukrainian economy. What it fails to acknowledge, however, is how the IMF package will further adversely impact that economy.

The IMF deal calls for $14-$18 billion in IMF financial support provided over the next two years, 2014-15. Another potential $9 billion reportedly will come from other countries, although in yet unspecified form. The European Bank for Reconstruction & Development apparently will provide $2 billion of that $9 billion.

Presumably the US aid package of around $1-$2 billion now currently working its way through the US Congress represents another element of the $9 billion. The remaining $5 of the $9 billion non-IMF funding is yet unidentified.

The $27 billion total is well in excess of the $15 billion that was being talked about in prior weeks by the public press and more than the $20 billion Ukraine had asked the IMF for at the end of 2013—an indication that the economy has been deteriorating more rapidly than reported since the beginning of 2014.

In previous articles on the Ukraine economic situation a few weeks ago, this writer estimated that at least $50 billion would be needed to stabilize the Ukraine’s economy over the next two years. That figure may even rise by 2015.

The IMF Statement of March 27 addresses what it considers the most important economic weaknesses of the Ukrainian economy that require immediate and focused attention. Those weaknesses include the Ukraine’s current trade deficit, its rapidly declining international currency reserves, its fiscal budget deficit, and the budget deficit of its state-owned national gas company, Naftogaz.

The IMF estimates that the Ukraine’s trade deficit (exports minus imports) at around 9% of GDP ($17 billion a year) is due to Ukraine’s stagnating exports. What the IMF proposes in order to resolve this is to allow Ukraine’s currency to continue to ‘float more freely’. The Ukraine currency so far in 2014 has already fallen 26% to the dollar. So the idea is to allow the currency to decline still further. In theory, that will make Ukrainian exports more competitive and in turn reduce the trade deficit. The problem is it will also result in a sharp rise in the cost of imports and therefore inflation for Ukrainian households. The IMF policy of promoting further currency decline, in other words, will mean even more domestic inflation, primarily impacting households, and therefore less spending by households on other goods and services.

Allowing the currency to decline further also suggests that IMF policy is for the Ukrainian central bank not to intervene aggressively in coming months to prop up the currency in global markets. That releases more of the IMF funds to service debt payments to western banks for the current and past loans. As the IMF statement indicates, “large foreign debt repayments loom in 2014-15.” The amount of debt payments due is estimated at $6.2 billion. So Ukrainian households will in part pay for the debt payments to western banks by having to adjust to higher inflation and reduce their real spending.

Given that $6.2 billion of the $27 billion IMF total package will go to servicing debt payments to the west, it also means that only around potentially $21 billion of the IMF total bailout remains to stimulate the Ukrainian economy. But the key word here is ‘potentially’, since much less than the $21 billion will actually go into the economy—and will be offset by far more ‘taken out’ per the IMF deal.

A $21 billion net IMF injection is an economic illusion. Here’s why.
First, the Ukraine’s economy will decline as a result of the IMF package because IMF measures require major changes in Ukraine’s monetary and fiscal policies that will in net terms slow, not stimulate, the Ukrainian economy.

For example, the IMF statement calls for monetary policy that targets “domestic price stability while maintaining a flexible exchange rate”. What that means is that the central bank, the National Bank of Ukraine (NBU), will be required by the IMF to reduce the Ukraine’s money supply and thus raise domestic interest rates, as part of “an inflation targeting framework over the next twelve months to firmly anchor inflation expectations.” Minus the economic jargon, what that means is that the NBU and IMF policy raising interest rates will slow the economy in order to offset expected inflationary pressures from imports that will occur from a further currency decline. That interest rate hike policy designed to offset expected import inflation will further slow the real economy. And that translates into a further loss of jobs as businesses cut back production due to rising interest costs.

But that’s not the half of it. IMF measures will not only result in rising import inflation, but will produce even greater inflationary pressures as a result of IMF-dictated terms related to Ukraine’s natural gas.

Estimates are that natural gas prices will increase by 79% as a result of the IMF-dictated 50% increase in gas prices. Simultaneously, as gas prices escalate gas subsidies to households will be totally phased out over the next two years, according to the IMF deal.

It has been reported that gas subsidies to households are equivalent to 7.5% of Ukraine’s GDP. So eliminating gas subsidies means a reduction in consumption of $6.5 billion a year, as households will have to reduce other consumption to pay now for the gas price hikes and the total phase out of gas subsidies.

That phase out of gas subsidies and 79% increase in gas prices means a $13 billion cut in real consumption over two years, 2014-15. That $13 billion reduces the remaining $21 billion of the IMF package still further, leaving only $8 billion in potential net remaining stimulus for the real economy from the IMF deal. However, that’s still not the entire picture of the IMF deal negative impact on the Ukrainian economy.

The IMF deal also calls for ‘Fiscal Policy’ reforms, or what it calls the need to “implement deeper fiscal adjustment” that will “reduce the fiscal deficit to around 2.5% of GDP by 2016.” That 2.5% budget cut represents another $4.5 billion in combined annual Ukrainian government spending cuts (and/or tax hikes), presumably in each of the next two years.

The spending cuts will no doubt come out of government job reductions and wage cuts for remaining government workers. It will also undoubtedly include deep cuts to the pension system affecting all retirees, which some estimate will mean cuts in pensions by up to 50% by 2016. It is possible that the $4.5 to $9 billion in government deficit reduction over the next 1 to 2 years will mean sales tax hikes for consumer households as taxes are cut for businesses, since the IMF statement of March 27 also calls for “measures to facilitate VAT (value added tax) refunds to businesses”.

In its March 27 statement the IMF has not spelled out the required job, wage, and pension cuts specifically. It is clearly waiting for the Ukrainian interim government to inflict those economic wounds on itself and the Ukrainian people, following which the IMF Management and Executive Board will approve the offered deal.

To summarize, the IMF deal of March 27 calls for paying western banks and lenders $6.5 billion over the next two years in debt servicing payments. It additionally requires the reduction of household gas subsidies by another $13 billion plus the total phase out of gas subsidies. And it indirectly calls for the Ukrainian government to cut spending by at least $8 billion (2.5% of GDP) over the next two years—in the form of cuts in government jobs, wage cuts for government workers, and pension payment reductions of a likely 50% for retirees in general.

Add all that up, and not surprisingly it’s around $27 billion. That’s $27 billion of economic spending and stimulus taken out of the Ukrainian real economy per the IMF deal. In other words, just about the $27 billion that the IMF purportedly will provide to the GDP per the March 27 announcement. Which means Ukrainian households will pay for the IMF’s $27 billion package with higher gas prices, elimination of gas subsidies, government job and wage cuts, and big pension payment reductions.

But $27 billion is not really an ‘even trade off’. It’s really a net negative stimulus for Ukraine due to the composition of the IMF deal. Keep in mind, the $6.2 billion in debt servicing payments outflow to the west will have absolutely no positive impact on Ukraine’s GDP. So, first of all, it’s really only the IMF net $21 billion ‘’in” vs. the Ukrainian $27 billion taken “out” of the economy per IMF requirements. But even $21 billion ‘in’ vs. $27 billion ‘out’ is not the true net estimate.

The $27 billion taken out reflects a household consumer spending ‘multiplier effect’ that is much larger than the $21 billion net domestic Ukraine injection by the IMF. If one assumes a conservative 1.5 multiplier effect, the amount taken out of the Ukrainian economy is more like $40 billion over the next two years—a massive sum given that the Ukraine’s GDP in 2012 was no more than $175 and was flat to stagnant in 2013. Of course, the $40 billion ‘out’ is adjusted by the $21 billion ‘in’ and its multiplier effect. But while the $40 billion ‘out’ will definitely occur, there is no guarantee the full $21 billion IMF injection “in” will actually happen in turn.

Some of that $21 billion will no doubt be ‘put aside’ by the Ukrainian central bank to replenish its foreign currency reserves, today at around only $10 billion or less. Some of it will be used to assist Ukrainian businesses to purchase European imports of intermediate goods, projected to rise in cost significantly as Ukraine’s currency continues to decline. And some of it will go to loans from the NBU to Ukrainian businesses that will hoard the cash and not use it to expand production. All this means that probably no more than half the $21 billion IMF net injection will actually affect the real Ukrainian economy. Given these ‘leakages’, the multiplier effects of the IMF injections will no doubt prove to be negative. It is not unreasonable to assume no more than a net $10 billion of the IMF’s $21 billion will get into the Ukraine’s real economy as a stimulus.

That leaves no more than a $10 billion net stimulus over the next two years, offset by a ‘multiplier’ of $40 billion reduction in the real economy over the next two years. A net reduction in Ukraine’s GDP of $30 billion in the next two years, or about $15 billion a year, represents a cumulative decline in GDP of at least 18%. And that’s a Greece-like Depression.

By absorbing the Ukrainian economy into the Eurozone, the latter is in effect taking under its economic wing yet another ‘Greece’ and ‘Spain’. And as in the case of those latter economies, those who will pay will not be the bankers and multinational businessmen, but the Ukrainian people. But that is the essential and repeated history and legacy of IMF deals globally for the last three decades.

Dr. Jack Rasmus
March 27, 2014

Dr. Rasmus is author of the 2010 and 2012 books, “Epic Recession: Prelude to Global Depression” and “Obama’s Economy: Recovery for the Few”, Pluto Presss, 2010 and 2012. He hosts the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network in the USA. His website is http://www.kyklosproductions.com and his blog is jackrasmus.com. His twitter handle is @drjackrasmus.

(The following is an excerpt from the just published in depth article, ‘Who Benefits from the Ukraine Economic Crisis’. For the full 5k Word Article, go to the website, http://www.kyklosproductions.com/articles.html, for a discussion of the outcomes of the crisis for Russia, Europe, and US interests, as well as the Ukraine)

“Today, Sunday March 16, 2014, 83% of the Crimea’s eligible voters have voted by 97% to secede from Ukraine and join Russia. Simultaneously, negotiations between the European Union and IMF with the interim government in the Ukraine, brought to power by a Coup D’etat on February 22, continue toward a conclusion set tentatively for March 21. Extreme political uncertainty thus promises to continue for weeks and perhaps months given these events, while economic conditions consequently continue to deteriorate in the Ukraine from an already extremely precarious state.

Most accounts of the situation in the Ukraine and Crimea have focused to date on political events and conditions. Little has been said in the press about the economic consequences of the Coup and subsequent events, or likely scenarios for the future.

What interests—in the Ukraine and global (i.e. western Europe, USA, Russia)—stand to benefit economically from recent and future events in the Ukraine? Who stands to lose? There’s a well-worn saying, if you want to find out ‘who benefits’, then “follow the money trail”. That trail will also lead to the inverse, ‘Who Pays’.

1. The IMF Deal of March 2014: Who Benefits, Who Pays

While the final version of the latest IMF package for the Ukraine is still in development, past relations and deals between the IMF and Ukraine indicate some likely characteristics of ‘Deal #2’ due on March 21. (Deal #1 was the agreement reached on February 21 between the IMF and the pre-Coup government of President Yanukovich. While that former deal was agreed to on the 21st, it was upset within 12 hours by the violent street actions of proto-fascist forces and the still unidentified sniper killings of more than 100 protestors and police forces in Kiev).

Former agreements and proposals between the IMF and Ukraine since the ‘Orange Revolution’ of 2004 resulted in IMF loans to the Ukraine as follows:

2005 IMF deal terms: $16.6 billion in loans to Ukraine

2010 IMF deal terms: $15.1 billion in loans to Ukraine

December 2013: Ukraine requests another $20 billion from IMF

The Orange Revolution of 2004 resulted in severing much (but not all) of the Ukrainian economy from Russia. That caused significant economic contraction for the Ukrainian economy for several years after. Think of the similar effects of the severance as if the west coast economy of the US—California, Oregon, Washington—were stripped from the USA and joined Canada. While the rest of the world economy, including Russia, enjoyed a moderate real economic recovery from 2004-07, Ukraine did not benefit much due to the economic severance from Russia that followed 2004 and the Orange Revolution. Ukrainian GDP declined or stagnated. In other words, the IMF deal of 2005 did little for the Ukrainian economy.

Then came the global economic collapse of 2008-09, generated largely by US, UK and western banks’ over-speculation in financial securities. The Ukrainian economy and GDP, like many economies, collapsed by more than -15% during those two years. That led to the second IMF deal of 2010. Ukraine believed the second deal would open its exports to western Europe and that would generate recovery. However, the European economy (EU) itself slipped into a second, ‘double dip’ recession in 2011-13, and demand for Ukrainian exports did not follow as anticipated. Ukrainian GDP again stagnated after a short, modest recovery, and then slipped into a recession again in the second half of 2013. In short, the 2010 IMF deal did little for Ukraine as well.

In fact, the 2010 IMF probably slowed economic recovery, as it required a 50% increase in household gas prices and corresponding cuts in subsidies for the same. That significantly reduced aggregate consumption demand by Ukrainian households and slowed the economy. So did corresponding IMF demands for reductions in government spending, which were a precondition for the $15.1 billion 2010 IMF package.

One of the reasons no doubt that the Yanukovich government last December 2013 decided to forego another IMF deal was the reported requirement by the IMF that household subsidies for gas be reduced by 50% more once again. Other onerous IMF requirements included cuts to pensions, government employment, and the privatization (read: let western corporations purchase) of government assets and property. It is therefore likely that the most recent IMF deal currently in negotiation, and due out March 21, 2014, will include once again major reductions in gas subsidies, cuts in pensions, immediate government job cuts, as well as other reductions in social spending programs in the Ukraine.

This possibility does not seem to bother current interim prime minister, Arseny Yatsenyuk, who has publicly commented by the cuts, saying that “we have no other choice but to accept the IMF offer”. In fact, Yatsenyuk and his post-Coup government even stated before negotiations with the IMF began this past week that they would accept whatever offer the IMF and the EU made.

Early leaks of the forthcoming March 21 IMF/EU bailout deal appear that the EU/IMF will provide a $2 billion immediate grant and subsequent $11 billion in loans. The European Investment Bank will provide a couple billion more. For a total package of around $15 billion. But there is no reason to believe that the coming $15 billion will prove any more economically stimulative to the Ukraine than did the 2010 deal of $15.1 billion. The Ukraine, European, and world economy is even weaker today than it was in 2010 when a brief, modest economic recovery globally was in progress. Today the trend is economic stagnation in Europe, significant slowing growth in China, and collapsing emerging markets. Western Europe in general, and Germany in particular, will focus on subsidizing and expanding its own exports first, and will be little interested in encouraging Ukrainian exports to Europe at the expense of its own industries. Thus, as was the case with the post-2010 IMF deal, western Europe in 2014-15 will not represent a major source of export demand to stimulate Ukraine’s economy. More bailouts from the EU/IMF and the USA will quickly be required.

The $15 billion promised represents less than the $20 billion the Ukraine said it needed last December—i.e. before its currency fell 20% and its foreign exchange reserves fell to less than $10 billion. And less than the $35 billion the new interim prime minister, Yatsenyuk, admitted is needed. This writer in an earlier article has forecasted more than $50 billion will be required, given the projected 5%-15% GDP decline expected for the Ukraine over the next two years.

Even if one assumes all the IMF’s $15 billion will actually go into the Ukrainian economy directly the concurrent cuts to gas subsidies, pensions, government jobs and government spending demanded by the IMF/EU deal will almost certainly offset much, if not all, of the IMF/EU $15 billion.

Considering just the question of gas subsidies to households:

The latest Ukrainian GDP (2012) figures show its GDP was equivalent to $176 billion in nominal terms (and $335 billion if adjusted to global prices, or in ‘PPP’, purchasing power parity, terms). Household gas subsidies reportedly amounted to 7.5% of GDP in 2012. That’s about $13 billion in nominal terms. So if the IMF deal pending reportedly requires a cut of gas subsidies of 50%, that’s about -$7.5 billion taken out of the Ukrainian economy. So the $15 billion IMF results in only half that in terms of real stimulus effects. The $15 billion becomes only a net $7.5 billion to the Ukrainian economy.

Cutting gas subsidies will not only result in removal of income for household spending who lose the subsidies, it will also result in sharp increases in gas prices that will reduce spending by nearly all households.

Then there’s the likely IMF demand for pension cuts. Particularly hard hit by the IMF deal will be elderly women households, who receive the majority of the pensions and which are spent to support children and grandchildren.

The cuts to gas subsidies and pensions, and rising gas prices, will reduce consumption immediately (and therefore GDP immediately) easily by more than $10 billion.

IMF-demanded cuts in other government spending will further offset the nominal IMF/EU $15 billion stimulus. Ukrainian government spending today represents 46% of GDP. The IMF will almost certainly therefore also demand a significant reduction in that 46%. That will mean in the short term even further GDP decline. That leaves a net real economic effect on the Ukrainian economy of well less than $5 billion.

But there may not even be the $5 billion to begin with.

The lion’s share of the $15 billion IMF loan will go to western banks (especially in Austria and Italy who are seriously exposed) to pay principle and interest on previous loans to the IMF and western banks (about $2 billion this year), will be used to finance future exports from the Ukraine (now running a $20 billion a year trade deficit), or will be used by the Ukrainian central bank to prop up the Ukrainian currency (now falling 20%). How much of the $15 billion in the IMF/EU package will be initially diverted to cover bank loan interest, finance trade deficits, and for Ukraine’s central bank efforts to slow the collapse of its currency remains to be seen. It past IMF deals are an indicator, much of that $15 billion will be used as a first priority for the preceding purposes. What’s left, if any, will go directly to the Ukraine economy. What’s left will no doubt amount to far less going into the real economy, than that which will ‘taken out’ of the Ukraine economy as a result of cutting gas subsidies, government spending, and pensions.

Add in rising inflation from ending of gas subsidies and inevitable rising unemployment from cuts in government spending, it is not difficult to estimate that the latest IMF deal will have no more positive impact on the Ukrainian economy than did the prior 2010 and 2005 IMF deals. Indeed, it will most likely have an even greater negative impact on the economy in general, and the average Ukrainian in particular.

To briefly summarize in terms of just the net impacts of the EU/IMF deal, ‘Who Benefits’ include: western European banks who will continue to receive principal and interest payments from the IMF that would had defaulted; global currency speculators who will be able to sell Ukrainian currency to the Ukrainian central bank at a subsidized price, Ukrainian companies that will be given export credits to continue selling to western Europe and the western Europe companies that import the Ukrainian exports at a more attractive price.

Those ‘Who Pay’ and who lose include :majority of Ukrainian households that will have their real income reduced as they pay higher prices for gas, Ukrainian elderly who will have their pensions cut, Ukrainian government workers who will lose their jobs, and all Ukrainian households who will lose other government services.

But all the foregoing only refers to the negative net economic impacts from the pending March 2014 IMF deal. What about the general economy, apart from the IMF deal, which is predicted to contract by 5%-15% over the next two years even assuming no worse development in political instability?

Who gains longer term from the Ukraine being more completely integrated into the western economy? Who loses longer term?

(For parts 2 through 7 of this article, go to the website, http://www.kyklosproductions.com/articles.html.)

Alternative Visions – The Ukraine Crisis: Political & Economic Dimensions Update – 03/15/14
Mar 15th, 2014 by progressiveradionetwork

ACCESS THE ARCHIVE OF THE SHOW AT: http://www.alternativevisions.podbean.com

“Dr. Jack Rasmus and guest, Steve Lendman, revisit the latest in the Ukrainian crisis, discussing its political and economic dimensions. In the first half hour, Dr. Rasmus raises ’10 Unanswered Questions’ about the political coup of February 22: Who were the snipers, why is no investigation underway, what is the composition of the neo-fascist parties on the street (Svoboda, Right Sector, UPA, etc.), what official positions have they assumed in the new interim Ukrainian government, why did US undersecretary of State, Virginia Nuland, admit to $5 billion spent by the US on Ukrainian politics, what are Nuland’s ‘Neocon’ credentials, and is there a ‘deep government’ in the US driving US foreign policy? Dr. Rasmus also raises the question of what are the ‘crony capitalist’ connections in the Ukraine with US business sectors? Rasmus identifies the key neo-fascist and crony capitalists and their current roles. Steve Lendman then gives his view of the Crimea referendum and perspective on the Ukrainian crisis, which he calls the worst and most dangerous since the 1962 Berlin crisis. In the second half of the show, Dr. Rasmus discusses economic issues, focusing on “who benefits” and “who pays” from the current economic crisis, including western Europe, the USA, Russia and the Ukraine itself. (Listeners more interested in the latter topic should go directly to the ‘station break’ at the 30 minute point of the show, and listen to the second half of the h our that discusses economic crises in the Ukraine and other regions affected by it. Rasmus warns the Ukrainian crisis may be the critical development that sends the European economy into its third ‘dip’ recession in 2014-15).

Interested in the ‘bad’ economic news coming out of China? Or why emerging market economies are rapidly declining? Listen to my recent ‘Alternative Visions’ radio shows where the events now unfolding today were predicted weeks ago. Both shows of 2-19-14 and 3-1-14 are available at either of the following:

http://alternativevisions.podbean.com/

http://prn.fm/category/archives/alternative-visions/

1. Alternative Visions – China’s Slowing Economy and Rising Financial Instability – 3/1/14

Mar 1st, 2014
“Dr. Rasmus takes a deep look into China’s economy, asking if it is heading for a ‘hard landing’? Will its growing financial bubbles soon burst? Rasmus discusses reasons why China’s economy is slowing, and its potential impacts on emerging markets, Europe, and the rest of the global economy. China’s growing financial instability is also explored, including the role of global shadow banks and the 200,000 richest ‘Ultra High Net Worth Individuals’ (aka biggest global finance capitalists and their primary financial institutions) stoking the financial bubbles and instability in China. How are they together driving China’s currency and real estate bubbles? What’s China trying to do to slow speculation in its currency, local housing, and local investment markets? Why is China total debt is now well above crisis levels? Are they driving China toward a ‘Lehman Moment’ financial crisis? Rasmus concludes with discussion of China’s recent shift to lower the value of its Yuan to ‘reign in’ the shadow banks and global speculators, and what that could mean if it loses control not only for China’s economic hard landing but for the world economy as well”.

2. Alternative Visions – An Emerging Global Economic ‘Perfect Storm’? – 02/19/14

Feb 19th, 2014
Dr. Jack Rasmus explains why the global economic crisis that emerged in 2007-08 may now be entering a ‘3rd Phase’. Dr. Rasmus discusses what’s happening now with the economies in China, Japan, Emerging Markets (India, Indonesia, Brazil, Turkey, So. Africa and others), and Europe. Why is China on a long term growth slowdown path? Why is Japan’s USA-like central bank QE money injection policy failing to stimulate Japan’s real economy and leading to Japan’s ‘fourth dip’ recession since 2008? Why is Europe drifting toward deflation and its recovery stagnating, with France now the ‘bad boy’ economy of Europe? Why are the emerging market economies locked into a growing crisis, with massive capital flight flowing back to the west, falling currency values, and inevitable slowing economies? What are the possible ‘contagion effects’ between the three ‘stormfronts’—China, Emerging Markets, Eurozone—and how are ‘mutually amplifying’ feedbacks about to exacerbate problems in each—creating a three front global economic ‘perfect storm’? Finally, what might this ‘Emerging Economic Perfect Storm’ mean for the USA economy, once again slowing in 2014 after its latest ‘false start’ last summer? (For more on this topic, read Dr. Rasmus’s forthcoming March 2014 ‘Z’ magazine article, ‘The Emerging Perfect Storm’, his last October 2013 ‘Z’ article, ‘The Slowing Global Economy’, and shorter entries on his blog, jackrasmus.com, since January. The ‘Z’ articles are also available on Jack Rasmus website, at http:www.kyklosproductions.com/articles.html ).

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