Monday, August 4, 2014

MUST READ: The Dire Straits of the Ukranian Economy

By Simon Black

There’s nothing more permanent than a temporary government measure, as the old saying goes.

I was reminded of it when I came back to Kiev over the weekend and that the Ukrainian government imposed a series of “temporary” taxes to help the war effort.

And boy does this government need money.

According to both Ukrainian and Russian news sources, several hundred solders were left without weapons or ammunition and crossed the border into Russia.

The Ukrainian news suggests that this was a forced withdrawal after being routed by rebel forces. The Russian news suggests that the troops were seeking asylum, no doubt tired of war.

So the Ukrainian government is in a hurry, trying to raise at least $1 billion (a lot of money here).

They’ve jacked up wage taxes, natural resource taxes, and even taxes on farming exports.

But even if they collect the money they’re aiming for, Ukraine and its government are in a serious pinch.

For the last few months, even before the turmoil began, Ukraine has been in an inflationary cycle. Both retail and asset prices were spiraling higher.

Now they’ve entered a stagflationary period. The currency has gone into freefall. Unemployment is rising. The economy is contracting (6% by phony government estimates). And inflation is a whopping 19%... and rising.

These people are getting abused. And the worst is yet to come.

The banking system is borderline insolvent. The head of the local Citigroup branch here said that the non-performing loan ratio in Ukraine is as high as 40%.

And potentially up to 4% of all bank assets are now locked down in Crimea, which may or may not even be part of Ukraine any longer.

If the banking system collapses (and many here suspect it will), this place will become unglued. Asset prices will collapse, yet retail prices will surge even higher.

I can already see it on the street; so many businesses have closed. Hopeless unemployed youths are now roaming the city or joining the war effort.

And the entire populace has been mobilized to support the fight.

Of course, it’s pretty damn easy to cheer on the bloodshed when it’s not your blood. War can seem glorious when you only have to read about it in the newspapers.

There’s so much more I need to tell you about—the only way for me to capture this was in another podcast, probably the most emotional I’ve ever done.

Come listen for yourself:

http://www.sovereignman.com/podcast/podcast-014-dulce-et-decorum-est-pro-patria-mori-14818/

Simon Black is Senior Editor, SovereignMan.com

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