Biden's Treasury Secretary Who Said Inflation Was 'Transitory' Now Backs Another Bad Idea

By Pamela Glass | Friday, 22 July 2022 14:10
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U.S. Treasury Secretary Janet Yellen on Wednesday announced she welcomed a decision to suspend Ukraine's debt service obligations by a group of six creditor countries, including the United States, and pressed different official and private creditors to join the attempt.

The creditor group declaring its intent includes Canada, France, Germany, Japan, the United Kingdom and the United States.

"I reiterate the call to all other bilateral official and private creditors to join this initiative and assist Ukraine as it defends itself from Russia’s unprovoked and brutal war, which has had a devastating impact on Ukraine’s people and economy, with spillover effects throughout the world," Yellen announced in a statement.

Facing an estimated 35% to 45% crash in GDP this year after Moscow's attack in February, Ukraine's finance ministry announced on Wednesday it was hoping to finalize the deferral on its approximately $20 billion of debt by Aug. 9.

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The delay, which was quickly supported by both the major Western governments and heavyweight funds that have lent to Kyiv, would come right in time to put off around $1.2 billion of debt payments due at the beginning of September.

The government's proposal, posted on its website, announced that all its bond interest payments would be deferred under the plan. However, to avoid what would be classed as a hard default, it also offered lenders further interest payments once the freeze ends.

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"The disruption to fiscal cash flows and increased demands on government resources caused by the war has created unprecedented liquidity pressures and debt servicing difficulties," the finance ministry announced.

It came amid signs that Moscow is now stepping up its attack, with Russian Foreign Minister Sergei Lavrov stating on Wednesday that the Kremlin's military objectives in Ukraine now go beyond the eastern Donbas area.

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Ukraine has estimated the costs of the war combined with lower tax revenues has left a $5 billion-a-month fiscal shortfall - or 2.5% of pre-war GDP. Economists calculate that pushes the annual deficit to 25% of GDP, compared with only 3.5% before the conflict.

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On top of that, researchers from the Kyiv School of Economics estimated that it will already take over $100 billion to rebuild Ukraine's bombed infrastructure. At the same time, the head of the EU's powerful financing arm, the European Investment Bank, has cautioned it could run into trillions.

It is estimated that the debt freeze could save Ukraine roughly $5 billion over the deferral period.

"We, as official bilateral creditors of Ukraine, intend to provide a coordinated suspension of debt service," a group of governments including the United States, Canada, France, Germany, Japan and Britain said shortly after Ukraine made its proposal.

"We also strongly encourage all other official bilateral creditors to reach an agreement" the group went on swiftly.

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