Eric Zuesse writes:  China is demanding refund of $1.5 billion in cash and of an additional $1.5 billion in Chinese goods that were paid in advance by China (in 2013), for a 2012 Chinese order of grain from Ukraine, which goods still have not been supplied to China.

Alex Luponosov, a Ukrainian authority on Ukraine’s banking system, says, “Ukraine won’t be able to supply the grain to China, because we don’t have it.” The reason he gives is that “there is a big shortage of technicians: combiners, adjusters, mechanics, farm-machinery operators — all of them were taken by the army.” Those men are being required to fight in Ukraine’s ‘ATO’ or ‘Anti Terrorist Operation,’ that’s occurring in Ukraine’s former Donbass region (the far-eastern tip of Ukraine), the place where the residents don’t accept the new Ukrainian Government’s legitimacy.

The RIAN report says that, “China is angry,” and it closes: “By the way, in addition to China’s $3B loan that’s to be repaid with grain [which cannot be supplied], Ukraine also received from China a $3.6 billion loan to pay for the gasification of coal, by Ukraine’s gas company, Naftogaz, which the Ukrainian Government has guaranteed up to 2.3 billion dollars. Information on the implementation of the coal-gasification project has not been made available, but there seems to be a high probability that this matter too will be decided in a court. If China decides to call in that loan, then the result will be the bankruptcy of either Naftogaz, or the Ukrainian Government.

The IMF, and other lenders, require Ukraine to win this war, because, if the Ukrainian Government doesn’t win, the natural gas and other assets that are in the ground in that region will not become available to be sold off by the Ukrainian Government in order to pay-off those investors; instead, the residents there (the people whom the Ukrainian Government is now trying to eliminate will control those assets, as being assets of a separate state — one which has not borrowed from these investors. The IMF wants the assets that are in the ground.

Sunday’s elections in Greece have brought Tsipras and his Syriza party closerto power.  In 2012, when Alexis Tsipras last ran to be prime minister of Greece, his compatriots were quite literally killing themselves in public squares because of the tough austerity measures that had strangled the country’s economy.

His alternative-left Syriza party, he said, may be the ticket out of the hell that Greece has become.  Tsipras did well on the reent ballot, perhaps because Greece has gotten worse. More than 200,000 Greeks have left the country in the last five years, and austerity has forced many businesses to shutter up or go off the radar. Greece’s black market economy is now estimated to account for nearly half of the country’s GDP.

There are also signs that Europeans in other countries who once fought to keep the eurozone intact at any cost now feel they could get along pretty well without Greece. After all, it has a population of only 11 million in a European Union of 500 million and it represents only about 1.4 percent of the union’s GDP.

Tsipras has promised the Greeks that Europe needs them and has no choice but to renegotiate Greece’s bailout debt conditions. And Greeks like what they hear.

Tsipras argues that in order to stay in the eurozone, Greece’s ruling party has negotiated a foolhardy payment schedule for its $378 million bailout debt that makes it impossible for the country to grow. The current repayment plan is 175 percent of the gross domestic product, and Tsipras wants a better deal, starting with his demand that Europe should simply erase most of the Greek debt.

The lessons the young leader has learned since the last elections are apparent. He has traded what amounted to fear-mongering in his last electoral campaign for consensus building, starting with a promise to some of his former naysayer European leaders. Many of Europe’s struggling countries have launched their own versions of alternative leftist Syriza parties and Tsipras had made the rounds to Italy, Spain and Portugal in recent months.

In 2012, Tsipras gave wide ranging interviews to most people who cared enough to ask. This time around, he is writing op-eds in Europe’s largest newspapers to garner support not only for voting Greeks who have moved abroad, but to get Europe’s other austerity-suffering countries to back the debt reshuffling proposal with the idea that such a precedent could help them, too.

Tsipras has come a long way in just a few years, but not all of Europe is optimistic about a Tsipras-led Greece. In an interview ahead of the World Economic Forum in Davos, Switzerland, Christine Lagarde, head of the International Monetary Fund, which owns a lot of the Greek debt, quashed Tsipras’s debt renegotiation promise and said there is very little wiggle room when it comes to renegotiating debt.

Dutch finance minister Jeroen Dijsselbloem, who heads the influential Eurogroup of European ministers agreed. “There’s no political support to write off Greek debt,” he said.

And in Germany, there was that Der Spiegel report that the German government would rather have a Greek-free euro than open the way for a trend that would be costly to the richer nations.

Greece rejected the punishing economics of austerity on Sunday and sent a warning signal to the rest of Europe as the left-wing Syriza party won a decisive victory in national elections, positioning its tough-talking leader, Alexis Tsipras, to become the next prime minister.

With 60 percent of the vote counted, Syriza had 36 percent, almost eight points ahead of the governing center-right New Democracy Party of Prime Minister Antonis Samaras, who had conceded defeat. The only uncertainty was whether Syriza would muster an outright parliamentary majority or if it would have to form a coalition.

Appearing before a throng of supporters outside Athens University late Sunday night, Mr. Tsipras, 40, declared that the era of austerity was over and promised to revive the Greek economy. He also said his government would not allow Greece’s creditors to strangle the country.

“Greece will now move ahead with hope, and reach out to Europe, and Europe is going to change,” he said. “The verdict is clear: We will bring an end to the vicious circle of austerity.”

Maher Chmaytelli writes: It is expected that King Salman, Saudi Arabia’s new ruler, will continue the policy of maintaining crude output to preserve market share even as prices have plunged.

Salman, 79, issued a royal decree to retain current ministers, according to the official Saudi Press Agency. Al-Naimi led OPEC’s Nov. 27 decision to maintain its crude production even as shale supplies spurred U.S. output to the highest in three decades. Salman said on Saudi national television that he will maintain the policies of his predecessor.

With production of 9.5 million barrels a day and exports of 7 million, Saudi Arabia accounts for more than a 10th of global supply and a fifth of crude sold internationally. The country’s refusal to surrender market share to rising U.S. output has contributed to the worst slump in prices since the global credit crisis of 2008.

Brent crude oil, the global benchmark, rose as much as 2.6 percent to $49.80 a barrel in London on Friday, before paring gains to $49.38 at 10:37 a.m. local time. West Texas Intermediate rallied as much as 3.1 percent.

The price increase following the death of King Abdullah will be temporary because it won’t alter the nation’s policies and U.S. oil output will continue rising.

In signs of a smooth succession, Salman was named king and Prince Muqrin, 69, another half-brother, has been chosen as Crown Prince. Salman appointed Prince Mohammed bin Nayef, the country’s Interior Minister, as deputy crown prince and his son Mohammed bin Salman as defense minister, Saudi State Television reported today.

Although the crisis in Ukraine continues to focus attention on Russia’s western border, Moscow is seeking to exploit a more lucrative prize along its vast northern frontage: the Arctic Circle. Melting ice has opened up new transit routes and revealed previously inaccessible oil and mineral deposits. Facing a year of harsh economic constraints, securing exploitable energy reserves remains a top priority for Moscow. The planned militarization of the Arctic is already underway, and funding is secured through 2015 (the Ministry of Defense was the only Kremlin ministry not to be curtailed in the most recent budget.

Although Russia faces a raft of internal and external problems such as a strained economy, matters in Ukraine and pressure from the international community, the Kremlin remains wedded to its pursuit of the Arctic. This has forced Russia’s neighbors to reassess their own military presence in places like the Barents Sea, as well as territorial claims to disputed parts of the Arctic Circle. Norway will press harder for a larger NATO presence in the northern region, but while military conflict remains a threat, Russia will stop short of instigating hostilities. The Kremlin knows that when it comes to acquisitions, actions speak louder than words, and any attempt to grab the rich, unclaimed territory of the Arctic Circle will have to be backed by force.   Russia Wants Artic Oil and Gas

Adair Turner writes:  As 2015 begins, the reality of deficient global demand and deflationary risks in the world’s major economies is starkly apparent. In the eurozone, GDP growth is slowing, and inflation has turned negative. Japan’s progress toward its 2% inflation target has stalled. Even economies experiencing more robust economic growth will miss their targets: inflation in the United States will not reach 1.5% this year, and China’s rate reached a five-year low of 1.4% last November.
In the advanced economies, low inflation reflects not just the temporary impact of falling commodity prices, but also longer-term wage stagnation. In the US, the United Kingdom, Japan, and several eurozone countries, median real (inflation-adjusted) wages remain below their 2007 levels. Indeed, in the US, real wages for the bottom quartile have not risen in three decades. And, though the US created 295,000 new jobs last December, actual cash wages fell.

The developing world is not doing much better. As the International Labor Organization’s latest Global Wage Report shows, wage gains are lagging far behind productivity growth.
Because real income growth is vital to boost consumption and prices, central bankers and politicians are now in the novel business of encouraging wage increases. Last July, Bundesbank President Jens Weidmann welcomed the fact that some German companies had raised wages above inflation. Japanese Prime Minister Shinzo Abe has gone a step further, repeatedly urging companies to increase wages – and encouraging them to do so by reducing corporate tax. So far, however, jawboning has had little effect.
This failure would not have surprised the monetarist economists who observed the high inflation of the 1970s. At the time, many policymakers blamed rapid price increases on “cost push” factors, such as pressure from trade unions for excessive wage hikes. Finance ministers and central banks frequently urged wage moderation, with many countries even introducing formal policies governing wages and prices.  But these policies proved largely ineffective.

The result in many countries has been stagnant real wages, increased inequality, and a potential structural bias toward deficient nominal demand. Given that wealthy people have a higher propensity to save, increased inequality tends to produce sluggish demand growth – unless, that is, the savings of the wealthy are lent to the poor.

The best way to achieve that is not through the current mix of ultra-low interest rates and quantitative easing. After all, though this approach would eventually stimulate demand, it would do so by driving up asset prices – thereby exacerbating wealth inequality – and by re-stimulating the private-credit growth that fueled the financial crisis. Cost of Deflation

Jeffrey Sachs writes:  The good news is that, even near the ZLB, monetary policy works. QE raises equity prices; lowers long-term interest rates; causes currencies to depreciate; and eases credit crunches, even when interest rates are near zero. The ECB and the BOJ did not suffer from a lack of reflationary tools; they suffered from a lack of suitable action.
The efficacy of monetary policy is good news, because fiscal stimulus is a weak instrument for short-term demand management. Ironically, in an influential 1998 paper, Krugman explained why. He argued at that time, and rightly in my view, that short-term tax reductions and transfers would be partly saved, not spent, and that public debt would multiply and create a long-term shadow over the fiscal balance and the economy. Even if interest rates are currently low, he noted, they will rise, thereby increasing the debt-service burden on the newly accumulated debt.

With all major central banks pursuing expansionary monetary policies, oil prices falling sharply, and the ongoing revolution in information technology spurring investment opportunities, the prospects for economic growth in 2015 and beyond are better than they look to the pessimists. There are rising profits, reasonable investment prospects for businesses, a large backlog on infrastructure spending almost everywhere in Europe and the US, and the opportunity to finance capital-goods exports to low-income regions, such as Sub-Saharan Africa, and to meet the worldwide need for investment in a new, low-carbon energy system.

If there is a shortfall of private investment, the problem is not really a lack of good projects; it is the lack of policy clarity and complementary long-term public investment. European Commission President Jean-Claude Juncker’s plan to finance long-term investments in Europe by leveraging relatively small amounts of public funds to unlock large flows of private capital is therefore an important step in the right direction.  Monetary Policy for Prosperity