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"The Kiev Electric Slide"--Into the Abyss


Getting some hryvnia together to buy a pencil. (IMAGE: freedomoutpost.com)

"Everybody get on the floor and do the funky Alfonzo," said Frank Zappa in the early 70's in Yellow Snow/Nanook/St Alfonzo's Pancake Breakfast. It is a tale about a man dreaming that he is an eskimo out in the frozen wastes of the Arctic, and unexpectedly finds himself (and his favorite baby seal) under attack from a fur trapper.

There may be an excellent analogy in Zappa's arctic fairy tale with Nanook constituting Ukraine and it's new leader, with the baby seal constituting the eastern border regions under attack and control by Russia, with the fur trapper none other than Vladimir Putin. The Russian leader surely has no problem running around whopping smaller species of nation over the head with--not a lead filled snowshoe--but with a mighty regional army and deadly paramilitary/intelligence service.

Never mind The Funky Alfonzo.  .  .  now it is time to do the Kiev Electric Slide . . . right into the murk of hyperinflation: kids making kites out of currency, using currency for fireplace fuel since the paper by weight costs less and burns longer than the amount of firewood it buys during horrible hyper-inflationary times.

Since January 1st, the Ukrainian currency (UAH) has essentially gone into a tailspin that makes the Russian ruble look the image of robust rosy-cheeked health by comparison. Versus the US dollar, the hryvnia has lost more than 50 percent of its value since then. Measure this against the ruble--itself in a disastrous state--which by comparison has lost only 8 percent since New year's.

Naturally, this has resulted into a scenario of massive hyperinflation. The last formal year to year inflation figures for Ukraine came in for January and were announced at 28 1/2 percent, which is nowhere near where the country is sitting at the moment. The current implied annual inflation rate is 272%, which stratospherically high, far far higher than the 127% rate of Venezuela.

To understand the formula by which this current implied rate is calculated, I urge readers to go to a major source for this article just posted by the Cato Institute, written by Steve Hanke. It paints a devastating picture of a national morass, a country sinking into the quagmire of worthless currency delivered in wheelbarrows to purchase a single postage stamp, a la the article I put up around a week ago envisioning a Greek exit complete with worthless New Drachma being printed with less value than the sheets of paper being butchered and the ink being printed to put the money into banks.    

Now with Putin threatening to cut off gas supplies to the country via his control of his nation's national export, the situation could deteriorate much further. Just a few days ago during the opening rounds of fighting around Mariupol Kiev announced that it could not deliver utilities to the eastern region. A complete shutdown would wreak utter devastation. Even Putin sniffed-- the cutting of gas to the war torn neighbor “smells of genocide.

Undoubtedly, Putin would resist stopping the spigot as the Ukraine pipeline is a major artery to supply gas beyond the bounds of its borders--gas to Russian customers in Europe flows through Ukraine first. Russia needs the revenue too badly, what with tanking oil profits during this crisis of extreme oversupply--these are idle threats. Thus the "genocide" comment preempting any cutoff measures and painting Putin as a grand humanitarian for not pulling the plug.

All in all, the situation in Kiev is one that is trying the livelihoods and testing the will of Ukrainians to a degree that no nation should ever have to withstand in a modern age. And with the national currency tanking beyond all measure, the awful spectre of 1920's era Weimar-style hyperinflation will likely see the country flirting with revolt once again.

Preston Clive

2/252015***