From the Telegraph…

As temperatures dropped below zero across much of Europe, the Russian prime minister instructed the head of Gazprom: “Cut it – starting today.”

I am starting to wonder if Russia is not using the current spat with Ukraine as an excuse to extract a higher price out of the EU. As long as Russia is sending any gas through the pipeline, Ukraine will be able to take what it needs. So by cutting the gas that Russia is sending down the line, it does not really put anymore pressure on Ukraine. But it does put more pressure on the EU.

Since Russia is getting killed by falling oil prices, it must be desperate to do whatever it can to keep natural gas prices as high as possible. A fight with Ukraine is as good as excuse for undertaking actions towards that end as any other.

As far as Ukraine goes, it simply can’t afford to pay the higher prices that Russia wants no matter what the rights and wrongs of the matter are. This from the Economist…..

For Ukraine, the weakening of its currency presents an additional problem. For several years the hryvnya has been worth around HRN5:US$1 yet since December it has been trading at HRN8:US$1 or weaker. Even if the US dollar import price for gas were to remain unchanged in 2008, this translates into a rise in the import bill for Naftohaz on constant volumes to HRN80bn from HRN50bn in 2008. Even a doubling of transit fees, which currently bring Naftohaz around US$2bn in revenue, would not cover the increase.

In other words, even if Ukraine could somehow convince Russia to hold prices steady in dollars terms (which is how Russia prices its gas to the Ukraine as I understand it), it still would result in a huge effective price increase for Ukraine. Just think of how much worse it would be for Ukraine if they had to pay an even higher dollar price for their gas.

And this on top of all their other problems.

This week’s rant of the week comes from Naked Capitalism and it is called “Woefully Misleading Piece on Value at Risk in New York Times”

From Reuters….

A grim economic outlook highlights the need for the Federal Reserve to step up quantitative measures to boost growth, with official interest rates already effectively at zero, Charles Evans, president of the Chicago Fed, said on Saturday.

Evans said that based on the outlook for rising unemployment, falling industrial production and a wider output gap, economic models suggest rates should be below zero.

“If it were not constrained by zero, those models would want to push it below zero, but that’s not possible,” Evans told reporters after a panel at the American Economic Association’s meeting in San Francisco.

Quantitative easing, a way to flood the banking system with large amounts of money, “is a way to mimic below-zero rates and provide support to the economy,” he said.

The only way to have real below zero interest rates is to have inflation. Why they think that will help matters is beyond me. Part of the reason we are having all the problems that we are having now is because Greenspan cut rates so sharply in 2001.

From MSNBC…..

With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world’s appetite for financing U.S. government spending.

For now, investors are frantically stuffing money into the relative safety of the U.S. Treasury, which has come to serve as the world’s mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.

From USA Today….

Auto sales likely dropped a breathtaking 3 million vehicles in 2008, the largest decline since 1974, said Ford Motor’s head of sales analysis Friday.

The last time sales fell that much, the country was embroiled in the 1973 to 1974 oil embargo crisis, with drivers lining up outside gas station waiting for fuel.

From Dawn….

As violent energy riots raged in various cities and towns, President Asif Ali Zardari here on Friday ordered an immediate end to gas load-shedding for domestic consumers and elimination of circular debt in the power sector that has bulged to Rs400 billion, crippling the power generation system, in six months.

Mr Zardari and Prime Minister Yousuf Raza Gilani headed a meeting at the presidency to discuss the energy crisis.

The meeting ordered some short-term measures for easing gas and petrol shortages and a few mid-term solutions to lessen load-shedding.

The measures included an assurance of daily supply of 30,000 tons of furnace oil to power generation companies which will likely add 2,700 megawatts of electricity to the system by month�s end.

The industrial sector has borne the brunt of the relief announced for domestic consumers. The gas shortage now amounts to 707 billion cubic feet a day and the ministry of petroleum believes that load-management is the only option to deal with the crisis.

Sources told Dawn the president was also informed that relief for domestic consumers meant a prolonged closure of factories, translating to more than an expected decline in industrial growth.

There is also this from Geo TV…

Gas crisis in the country continued unabated, as the supply and demand gap has widened up to 700mmcfd (million, million cubic feet per day).

The intensifying shortage of gas supply has now hit over 2500 industrial units in Lahore, Faisalabad, Multan and other cities/towns, whose supplies remain severed for the last several days and were forced to lockout, which has severely hit the production process resulting difficulties in meeting the export orders deadline and rendering the workers to unemployment in large numbers.

I am amazed that this is not receiving more coverage in the western press.

From MSNBC….

If you expect you’ll be getting a refund from California when you file your 2008 state income tax return, be prepared: you may instead receive a “registered warrant.” Translation: an IOU.

First some back ground from the BBC….

Gazprom cut off Ukraine’s gas supply on Thursday in a row over payment.

The firm has since accused Ukraine of stealing gas, however Ukraine’s state energy firm said Russia was not sending enough gas to ensure the EU supplies.

Ukraine’s state gas company, Naftogaz, denied illegally siphoning Russian gas, saying it was ensuring the export supply.

Now note the following stories….

Poland sees gas deliveries from Ukraine drop.

Hungary says gas pressure from Ukraine drops.

Russian gas exports to Romania fall by 30-40 pct

Who knows where the truth lies, but it is hard to believe that the Ukraine would let natural gas transit a crossed its country while its own citizens were cut off. On the other hand Ukraine had higher stocks this time around, so it is possible that Russia cut supplies just to make it look like Ukraine was stealing.

From Calculated Risk….

Another exception is New York. Prices in New York are only off 11.4% even though New York is part of the Zoned Zone. New York had a price bubble, but until recently prices had held up pretty well. This probably means New York house prices will decline by a larger percentage over the next year or two than other bubble areas …

Calculated Risk is talking about New York City, not New York State. Still, it has amazed me how well New York State real estate prices have held up compared to the rest of the country. Many places in upstate New York have not even seen as big as drop in prices as New York City has.