Wednesday, March 19, 2014

The Ukraine: It's Still Complicated

Readers of this blog know that we are following the Ukraine situation from a little different angle than most news media. They will cover whatever happens in the war of words, war of sanctions, or even war with bullets, if it comes to that. 

Here we are watching to see if this situation blows up into a serious crisis that sees the IMF enter the picture as the problem solver. It appears this could be the start of a series of important events. If possible, please read this whole post and the linked articles.

As things have unfolded we have become more informed and we feel like we know what is important to focus on. That doesn't mean things are simple by any means. Our first post on this was titled "The Ukraine: It's Complicated". And it still is to us. We still don't claim to have all the answers as to what all is involved here. But we do think what role the IMF (and perhaps the UN) plays is important to follow. 

With that in mind here are three articles illustrating how complex all this is and how difficult it could be to get a united approach to a solution. The links to the articles are posted below with brief summary by us below each link. We hope you can take time to read all the articles as they show how there are many different interests involved here with different possible agendas.

First is this one:  

We have already said that Putin and Russia seem to want the IMF to step into to help resolve things. Here China seems to be pointing in that direction as well. Here is a key quote from this article:

"China has put forward its own proposal to address the Ukrainian crisis last Saturday, calling for the establishment of an international coordinating mechanism joined by all parties concerned as soon as possible to explore political possibilities."

Next we have this article from the Heritage Foundation:

Remember that we are watching closely the battle in Congress to get a Ukraine loan package passed. The Obama Administration used what Jim Rickards calls "the shock doctrine" to attach an IMF reform package to the bill. Rickards defines the shock doctrine as when someone uses a crisis to advance a separate item in their agenda (not necessarily related to the actual crisis). Keep this point in mind also when we post the third article below. In this article the Heritage Foundation makes their case as to why Congress should not approve the IMF reform package just to get a loan to the Ukraine. We will let you read their article to see what their view is. This is probably why House Republicans are not ready to vote for the IMF reform package.

Now we have  perhaps the most interesting article  that is from the editorial board of the Washington Post. 

Recall that we have shown that this IMF reform package is something that the IMF, Russia, China, and the Obama Administration all want (we can add the US Senate now which is looking to pass the loan bill with this IMF reform attached). We noted that it seemed like a battle was in progress where the US House would be isolated and made to look like the obstructionists preventing the loan from getting to the Ukraine. And all that has happened. Harry Reid has already said that very thing.

But here we have the Washington Post essentially siding with the House Republicans. Not something you would expect. They point out that the loan bill needs to pass quickly, but has gotten bogged down in "partisan politics".  You would expect them to follow that up by piling on the Republican House as being the problem. But here is what they say in the article:

"The IMF reforms are important; they would fulfill a promise Mr. Obama made at the 2010 Group of 20 meeting to help the fund boost its lending capacity while shifting some of its financial burden to emerging economies — and giving those countries correspondingly greater power over IMF decisions. But there is only a vague policy connection between that and pending IMF aid to Ukraine, which is well within the fund’s current capabilities. Furthermore, House Republican opposition to the IMF reform plan was perfectly foreseeable, and, in light of current events, not entirely unreasonable."

And there is more:

"The White House and Senate Democrats are more to blame for picking this fight than is the House GOP for waging it. The House has passed a bill that authorizes the Ukraine loan guarantee, and it would have been simple to get Senate approval for a similar, “clean” measure. Notably, a senior House Democrat, Nita Lowey (N.Y.), said Friday that she was “surprised and disappointed” that the Senate linked Ukraine aid to IMF reform. We know it’s an election year, but vital U.S. interests in Europe are at stake. Perhaps even the United States’ partisan politicians can stay focused on addressing the Ukraine crisis instead of exploiting it."

Can this get more complicated? 

There is controversy over who started this whole thing. There is controversy and confusion over what Putin wants out of it. There is confusion over who is really in control of the Ukraine now. Everyone seems to want the IMF/UN to step in and try to get a diplomatic solution. But even that has gotten complicated as a simple bill to extend an emergency loan is now bogged down in the Congress over the IMF reform package attached to it. And it could lead to a big debate over the proper role of the IMF as well if it stays part of the bill.

By now it should be clear how important the IMF role is in all this. How this is decided will probably decide if the IMF is going to become a bigger player on the global stage. That could impact future monetary system change including any currency reset or other changes like a new global reserve currency. And how the US dollar fares in all this is huge. 

If the dollar starts into a nose dive for any reason (war breaks out, Russia and China dump US bonds, the US loses prestige, etc. etc), the global financial crisis some are predicting might arrive sooner than expected. And who will step up to address it? The IMF?  ----  The US FED? (doubtful they can pull it off this time) ----  China? (they want the IMF/UN to handle it)

This is why we are following the Ukraine from this angle. It's very complicated. Major competing interests are key players. How it is resolved may greatly impact the future of the monetary system. It's everything we are here to try and keep an eye on. So far, not that much has really happened. But that could easily change.

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