Economy at large

Russia-Ukraine war: Day 453

Here is the situation as it stands on Monday, May 22, 2023.

Fighting

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Russians celebrate reports that ‘fortress Bakhmut’ has fallen

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Why is Bakhmut important in the Russia-Ukraine war?

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Zelenskyy calls on G7 to ensure Russia is ‘last aggressor’

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Tens of thousands rally in Moldova for EU membership

Ukrainian President Volodymyr Zelenskyy has clarified earlier comments on the situation in Bakhmut, saying that it was “not occupied” by Russia “as of today”. Earlier, he told reporters that there was “nothing left” of the eastern city and that the Russians had “destroyed everything“.
Russia has claimed to have fully captured Ukraine’s Bakhmut, with President Putin congratulating his troops and the mercenary Wagner Group for taking the largely-ruined eastern city.
Colonel General Oleksandr Syrsky, the commander of Ukraine’s ground forces, has said Ukrainian troops were approaching a “tactical encirclement’ of Bakhmut,” according to the Kyiv Independent. The commander earlier visited the front line.
A Russian-installed official in Ukraine’s southern Zaporizhia region has said Kyiv struck the Russian-occupied port city of Berdyansk with UK-supplied Storm Shadow cruise missiles. Kyiv said it had hit a Russian headquarters there but did not say what weapons it used.
President Zelenskyy has compared the “total destruction” of the Ukrainian city of Bakhmut with the World War II devastation of Hiroshima after it was hit by a US atomic bomb.
The White House has said it estimated Russia’s army had suffered 100,000 casualties in the last five months — including the deaths of 20,000 Russian soldiers.

Diplomacy

The three-day G7 summit has wrapped up in Japan, with leaders pledging more support for Ukraine following Russia’s February 2022 full-scale invasion. Ukrainian President Volodymyr Zelenskyy took part in the summit in person.
The G7 meeting has resulted in “unwavering unity” in supporting Ukraine to fend off Russian war, and Zelenskyy’s presence has sent “a strong message” to the world, Japan’s Prime Minister Fumio Kishida said after the three-day summit.
Tens of thousands of Moldovans have rallied in the capital Chisinau to support their pro-Western government’s drive towards Europe amid what officials have said are Russian efforts to destabilise their country.
Canada will support Ukraine for as long and as much as necessary in its conflict with Russia, Canadian Prime Minister Justin Trudeau has said at the G7 summit.

Weaponry

United States President Joe Biden has confirmed a new military aid package worth $375m for Ukraine, saying the US would provide ammunition, artillery, armoured vehicles and training. The new pledge came days after Washington agreed to allow training on US-made F-16 fighter jets, laying the groundwork for their eventual transfer to Ukraine.

Why Mortgage rates are increasing in USA ?

Before COVID outbreak in 2019, mortgage rates were 3.94% and many economist thought that this is the lowest level where federal bank could go. But 2020-21 proved them wrong.

Due to global pandemic, governments all over the world had to increase their expenditure and even ordinary people needed money to satisfy their needs.

Now, if government wanted to tackle this situation, they will have to print more money and lower lending rates so people can use excess line of credit. This is basic economics. Therefore, central banks all over the world reduced their lending rates and tried to fight and then revive from this disaster.

Similarly, federal bank which is USA’s central bank reduced their lending rate to 3% in 2020 and 2.65% in 2021.

Now, when the situation starts to recover (Post Pandemic) inflation rises as more money is pumped in the economy. The most basic thing to understand inflation is if you check your monthly grocery bill before pandemic and post pandemic you will see almost 8-10% increase. This is inflation.

Now, As prices increases, there is fear of hyper-inflation so federal bank raises interest rates. Due to this, liquidity is sucked from the market. And it eventually helps to stabilize the economy.

This same policy is followed all over the world.

Now, Why does Federal Bank or Governments do these things ?

The simplest answer is ” ECONOMY’s BEST STAGE IS WHEN IT IS STABILIZE ” Stabilize means not inflationary or deflationary stage. the reason behind this is altogether a different topic for discussion.

Further, when Economy is stabilize, Federal Bank will again start reducing the Lending interest rates at very slow speed. (Not like it did at the time of COVID).

Governments Don’t want you to know this ?

1] I wish people knew this about politics and economics. Economies grow because our wants > resources. Therefore, companies try to produce things efficiently.
And, we consume them because we derive benefits.

2] If most of the things in the world were left as “free markets”, money would automatically flow to most efficient producers. In 2022, governments & citizens alike are bleeding through their nose, paying high taxes, laden with crazy debt and high inflation.

3] Why? it is a validation of the Keynesian economics going wrong. So here is the back story:- Back in the 19th century, Gold was a currency. FIAT money came and improved the speed of transaction and the fractionalisation problem associated with gold.

4] The system worked up until WW-1. Now, War is costly and if we citizens truly understood the true cost of war, no one would go to one.

5] But, this presented an amazing opportunity to devious governments to de-facto institute a system: where FIAT money (or government bonds) would be presented as a great investment opportunity to the general masses. Bonds were swapped for gold, with a promise of returns.

6] The model got tweaked and FIAT (which has infinite supply) replaced gold (which has a finite & a stable supply) at scale eventually.

7] Masses were convinced that 2% inflation is great for you (since it allows the world to grow– but de-facto it simply gives governments more power to print money).

8] The more the government can print, the more useless business it can subsidise (eg. consider Airlines, Power Plants etc in India) all are now being privatised, after ginormous failures. And, after destroying crazy amount of wealth.

9] You would ask: who gave governments so much money to destroy? Simple answer: You and me. Did we give it willingly? the answer is no. We basically gave them a licence to print as much money as they like (we pay it back through increased taxes and inflation).

10] Meanwhile, short sighted politicians go on 4-5 year spending extravaganzas dolling out political favours to people/businesses they like, offering cheap debt. Why? Because they have infinite power to print.

11] The fact remains you can earn 10 Million and put it in your bank account. You will feel safe.But, even that can be burned down to 0 through hyperinflation. Why no one talks about it? because most of the Economics that is taught in schools/universities is Keynesian