Palms & Company Document

The Trials and Tribulations of Ukraine's Currency

by

Dr. Pyotr Johannevich van de Waal-Palms

UKRAINIAN KARBOVANETS PLUMMETING.

14/8 TASS 86

BY MIKHAIL MELNIK

SOME EXPERTS THINK DIFFERENT. THEY BELIEVE THAT IN AUGUST-SEPTEMBER THE STATE WILL HAVE TO PRINT MORE MONEY AS CONSIDERABLE SUPPLY OF KARBOVANTSY WILL BE WITHDRAWN FROM CIRCULATION AND PRICES WILL SOAR. MOREOVER, THE STATE owes SUMS RUNNING INTO THOUSAND BILLIONS OF KARBOVANTSY TO WORK COLLECTIVES.

That makes no sense at all. What they seem to mean is that due to the large amount of back wages, it's cheaper to pay workers in inflated dollars today or tomorrow then in yesterday's more expensive dollars.

Karbovanets are not being withdrawn from circulation, the printing of money if constantly increasing the supply., That is why the exchange rate has to be artificially manipulated. That worked in post World War II Europe, because the resulting capital availability was utilized for economic reconstruction rather than flight capital. In Ukraine it evaporates.

The way I would put it is: Its cheaper to pay wages with cheaper karbovanets ( in terms of cost in dollars). The dollar is not inflating (versus other hard currencies). Rather the real value of the karbovanet is being devalued by printing money. In the West, this is called stealing.

The government prints more money thereby lowering the exchange rate. It then buys karbovanets with dollars and settles their old back wage bills with less money. This presumes there is no adjustment for inflation or exchange rate and the back salaries are fixed.

This is another way of taxing again, income that has already been taxed. This further lowers the purchasing power of the wage earner lowering disposable income (after food and shelter) thereby reducing demand and thereby reducing production thereby diminishing GDP, thereby diminishing government revenues from taxing GDP. Its a vicious circle driving the country to bankruptcy.

The logical approach to survival would be to

1. Set up a currency board (outside the country central bank)

2. stop printing money

3. index wages at the exchange rate

4. make savings possible by relating wages to GDP (productivity)

5. encourage investment of savings in increased GDP

6. increase government revenues through increased aggregate tax receipts at ever diminishing percentages of taxation

The result would be a growing economy able to support the government (services) the work force wants.

This implies the government would reduce it's size to one the people can afford now and pursue policies the people want. (real reform). Instead the "government" pursues policies which conflict with the interests of their "constituents".

This evidences that Ukraine's population have no "government" in the normal meaning of the sense of the word (public servants). Instead it has a third party leach which is destroying the economy by exploiting the producers (workers), in order to support an elite. Meanwhile IMF and the West maintain these rulers because the political consequences of not doing so might harm their interests. But unfortunately the interest of the population do not figure into this equation. The hope of course is that someday the people will get the courage and insight to throw of this unnecessary yoke and regulate their affairs in the best interests of the population ( elect representatives that serve the people). Those who call themselves the government now have interests which conflict with the interests of the Ukrainian people.

How unfortunate that the world lacks great leaders who can speak out for reason and justice and economic sanity. Without principles we ignore the essence of the problem.

Democracy and Capitalism require integrity.

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