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NEW YORK (AP) — Nearly two months into the Russian-Ukraine war, the Kremlin has taken extraordinary steps to blunt an economic counteroffensive from the West. While Russia can claim some symbolic victories, the full impact of Western sanctions is starting to be felt in very real ways.

As the West moved to cut off Russia’s access to its foreign reserves, limit imports of key technologies and take other restrictive actions, the Kremlin launched some drastic measures to protect the economy.

Those included hiking interest rates to as high as 20%, instituting capital controls and forcing Russian business to convert their profits into rubles.

As a result, the value of the ruble has recovered after an initial plunge, and last week the central bank reversed part of its interest rate increase. Russian President Vladimir Putin felt emboldened and proclaimed — evoking World War II imagery — that the country had withstood the West’s “blitz” of sanctions.

“The government wants to paint a picture that things are not as bad as they actually are,” said Michael Alexeev, an economics professor at the University of Indiana, who studied Russia’s economy in its transition after the collapse of the Soviet Union.

A closer look, however, shows that the sanctions are taking a bite out of Russia’s economy:

— The country is enduring its worst bout of inflation in two decades. Rosstat, the state’s economic statistic agency, said inflation last month hit 17.3%, the highest level since 2002. By comparison, the International Monetary Fund expects consumer prices in developing countries to rise 8.7% this year, up from 5.9% last year.

— Some Russian companies have been forced to shut down. Several reports say a tank manufacturer had to stop production due to the lack of parts. U.S. officials point to the closing of Lada auto plants — a brand made by Russian company Avtovaz and majority-owned by French automaker Renault — as a sign of sanctions having an effect.

— Moscow’s mayor says the city is looking at 200,000 job losses from foreign companies shutting down operations. More than 300 companies have pulled out, and international supply chains have largely shut down after container company Maersk, UPS, DHL and other transportation firms exited Russia.

— Russia is facing a historic default on its bonds, which will likely freeze the country out of the debt markets for years.

Meanwhile, Treasury officials and most economists urge patience that sanctions take months to have full effect. If Russia can’t get appropriate amounts of capital, parts or supplies over time, that will cause even more factories and businesses to shut down, leading to higher unemployment.

It took nearly an entire year after Russia was sanctioned for seizing Ukraine’s Crimea peninsula in 2014 for its economic data to show signs of distress, such as higher inflation, a decline in industrial production and a slowdown in economic growth.

“The things that we should be looking for to see if the sanctions are working are, frankly, not easy to see yet,” said David Feldman, a professor of economics at William & Mary in Virginia. “We’ll be looking for the price of goods, the quantity of goods they are producing and the quality of goods. The last being the hardest to see and probably the last to appear.”

Transparency into how sanctions are affecting the Russian economy is limited, largely because of the extraordinary lengths the Kremlin has taken to prop it up and its largest sector — oil and gas — is largely unencumbered due to European, Chinese and Indian reliance on Russian energy.

Benjamin Hilgenstock and Elina Ribakova, economists with the Institute of International Finance, estimated in a report released last month that if the European Union, Britain and the U.S. were to ban Russian oil and natural gas, the Russian economy could contract more than 20% this year. Current projections forecast a 15% contraction.

While the EU has agreed to ban Russian coal by August and is discussing sanctions on oil, there’s been no consensus among the 27 nations so far about halting oil and natural gas. Europe is far more reliant on Russian supplies than Britain and the U.S., which have banned or are phasing out Russian oil. In the meantime, Russia gets $850 million a day from Europe for its oil and gas.

The U.S. and its allies have argued that they have tried to tailor sanctions to affect Russia’s ability to wage war and financially hit those in the highest echelons of government, while leaving everyday Russians largely unaffected.

But Russians have noticed a spike in prices. Residents of one Moscow suburb said 19-liter jugs of drinking water they regularly order have become nearly 35% more expensive than before. In supermarkets and stores in their area, the price for 1 kilogram (2.2 pounds) of sugar has grown by 77%; some vegetables cost 30% to 50% more.

Local news sites in different Russian regions in recent weeks have reported that multiple stores are shuttered in malls after Western companies and brands halted operations or pulled out of Russia, including Starbucks, McDonald’s and Apple.

The Kremlin and its allies on social media have repeatedly pointed to the recovery of Russia’s ruble as a sign that Western sanctions aren’t working. The ruble crashed to around 150 to the dollar in the early days of the war but recovered to around 80 to the dollar, about where it was before the invasion. A gauge of weekly inflation by Rosstat has shown inflation slowing, but that is not surprising after the central bank raised interest rates as quickly as it did.

Russia’s central bank had doubled its benchmark interest rate to support the ruble’s plunging value and stop bank runs. It dropped the rate to 17% from 20% this month and signaled it might lower it further.

This isn’t the first time Russia has thrown its full force behind defending the ruble’s value as a symbol of resistance against the West. Throughout the 1970s and ’80s, the Soviet Union had an official exchange rate of one ruble equaling about $1.35, whereas the black-market exchange rate was closer to four rubles to the dollar. The Russian debt crisis of the late 1990s also was caused partially by the Kremlin’s active defense of the currency’s value.

U.S. Treasury officials have dismissed the significance of the ruble’s recovery.

“The Russian economy is really reeling from the sanctions that we put in place,” Treasury Secretary Janet Yellen said, adding that the ruble’s value has been artificially inflated by central bank intervention.

If and how Russia wins the economic war will come down to whether the Kremlin can drive division in the West, causing the sanctions to become patchy and less effective. At the same time, Russia will have time to develop alternatives for goods it can no longer access, a concept known as import substitution.

Looking back at the 2014 sanctions, the Congressional Research Service said in January that the impact on Russia was modest only because the U.S. effectively acted alone. This time, there are multiple international actors.

But Alexeev, the University of Indiana professor, sees one glaring gap.

“As long as Russia can continue to sell oil and gas, they will muddle through this,” he said.


Hussein reported from Washington. White House reporter Joshua Boak contributed from Washington.

Copyright © 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, written or redistributed.

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Pete Buttigieg claims a rail strike would force Americans to boil their water and the economy would grind to a halt - as unions, Democrats and Republicans go to battle over paid sick leave

Pete Buttigieg painted a grim picture if railroads shut down due to a strike claiming the auto industry would shut down, Americans would have to boil water to clean it or 'resort to bottled water' and 765,000 people would lose their jobs in the matter of two weeks.

The Transportation Secretary pushed on Thursday for the Senate to pass the House's bill forcing railroad workers and unions to accept a deal with the White House that would avoid a strike by December 9.

'There is no substitute in the U.S. for functioning freight rail, and if a shut down were to occur, that's not just shutting down our trains, it's really shutting down our economy,' Buttigieg told MSNBC's Morning Joe program on Thursday.

The House passed two pieces of legislation Wednesday, one to avoid a strike and one on giving railroad workers at least seven days of paid sick leave.

The measures will now need to pass the Senate before going to President Joe Biden's desk, which Buttigieg, and other White House officials, say needs to happen by the weekend at the latest.

Transportation Secretary Pete Buttigieg said the economy would face dire consequences if U.S. railroads were to shut down from a strike 

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The first bill passed by the House Wednesday was forcing a tentative agreement reached between Biden and railroad unions in September negotiations, which fell apart this fall after four of the 12 unions refused the terms.

The resolution echoed much of that previous agreement and included a 24 percent salary increase for rail workers by 2024, $5,000 in annual bonuses and caps on healthcare premiums.

It's unclear if there are the 60 votes needed in the upper chamber to pass both measures – but it's much more likely the bill avoiding a strike would pass before the one permitting seven paid sick days.

Buttigieg says he is hopefully that the bill will pass the Senate.

'I think it will. I hope it will,' he told the Morning Joe hosts. 'I'm going to be spending time with senators today, mainly to make sure they understand the implications of inaction for our transportation system.'

Buttigieg said a railroad shut down would collapse the economy and lead to 765,000 layoffs. Also said Americans would have to boil their water or get bottled water because 'water treatment plants would run out of the supplies'

He then described what would happen to the economy if rail workers were to strike and shut down the U.S. train system.

'Immediately you would see effects, including when it comes to inflation, prices shooting up because of the cost of shipping,' Buttigieg detailed.

'You would see water treatment plants in some cases, fairly quickly, running out of the supplies that they need and you could have American citizens in cities around the U.S. being told they need to boil their water or resort to bottled water,' he added.

'Within a few days, you would start to see our ports unable to operate because they couldn't ship the goods out of the ports,' Buttigieg said. 'So they would eventually get so congested, they would have to turn ships away. You would see our auto industry very quickly grinding to a halt, because many facilities only have a couple of days of parts on hand.'

The Transportation head repeated previous estimates that in the 'first two weeks of a shut down' of the railroad system, there would be 765,000 layoffs. 'And there's no guarantee that laid off workers would get their jobs back after a disruption ended,' he added.

Rail strike looms as Congress works to impose tentative benefit agreement four of 12 unions object to: What's at stake 

Eight out of twelve rail workers' unions have accepted a White House-brokered tentative agreement between labor leaders and rail operators that includes a 24 percent pay increase. Four other major labor unions have not accepted the deal, arguing it does not allow their workers enough sick time. 

Biden has now called on Congress to act to impose the deal on workers who have not accepted it before the December 9 deadline, after which they will strike if there is no deal. 

What's in the deal: 

Time off for medical appointments - workers will be able to take time off for medical appointments without being penalized. 

Pay raises - workers will be offered a 24 percent pay raise over the fivey-ear period from 2020-2024, back pay and cash bonuses, with 14 percent of the raise taking effect immediately

No health care hikes - the agreement prevents increases to healthcare copays and deductibles, a big win for workers. 

More time off - workers would be given voluntarily assigned days off and one more paid day off per year. 

Two-person crews - The deal protects two-person crews indefinitely, after workers voiced safety concerns when they were asked to operate trains by themselves

What's not in the deal: 

15 days of sick leave - workers who object to the deal say this is their sticking point. The tentative deal only offers one additional day of sick leave. 

What happens if a deal isn't reached by December 9:

As Biden noted, a rail strike would 'devastate our economy,' and could put up to 765,000 out of work. The president noted that it could even affect the drinking water supply and livestock and agriculture. Businesses the nation over could be forced to shut their doors without access to the supplies they need, and the U.S. economy could lose out on $2 billion per day.

If even one of the unions goes on strike, the other 11 honor the picket lines, shutting down railroads. 

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