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KIEV, Ukraine (AP) — Russian troops said to be 16,000 strong tightened their stranglehold on Ukraine's Crimean Peninsula Monday, openly defying the U.S. and the European Union and rattling world capitals and stock markets.

The West struggled to find a way to get Russia to back down, but with little beyond already threatened diplomatic and economic sanctions, global markets fell sharply over the prospect of violent upheaval in the heart of Europe.

For its part, Moscow reiterated its price for ending the crisis: restoration of a deal reached with the opposition less than two weeks ago to form a national unity government in Kiev that represents pro-Russian as well as Ukrainian interests, with new elections to be held by December.

Ukraine, meanwhile, accused Russia of piracy for blocking two of the besieged country's warships and ordering them to surrender or be seized.

The U.S. originally estimated that 6,000 Russian troops were dispatched to Crimea, but Ukraine's mission to the United Nations said Monday that 16,000 had been deployed. That stoked fears that the Kremlin might carry out more land grabs in pro-Russian eastern Ukraine.

U.S. Secretary of State John Kerry was headed to Kiev in an expression of support for Ukraine's sovereignty, and the EU threatened a raft of punitive measures as it called an emergency summit for Thursday. The Pentagon said it was suspending exercises and other activities with the Russian military, and a senior U.S. officialsaid the U.S. would not move forward with meetings designed to deepen the trade relationship between the two countries. Lacking authorization to speak publicly about the trade meetings, the official requested anoymity.

But it was Russia that appeared to be driving the agenda.

Foreign Minister Sergey Lavrov said at a U.N. Human Rights Council session in Geneva that Ukraine should return to an agreement signed last month by pro-Russian President Viktor Yanukovych — but not Moscow — to hold early elections and surrender some powers. Yanukovych fled the country after sealing the pact with the opposition and foreign ministers of France, Germany and Poland.

"Instead of a promised national unity government," Lavrov said of the fledgling new administration in Kiev, "a government of the victors has been created."

The latest flashpoint came when Ukrainian authorities said Russian troops had issued an ultimatum for two of the besieged country's warships to surrender or be seized.

"I call on the leadership of the Russian Federation. Stop the aggression, stop the provocations, stop the piracy! These are crimes, and you will be called to account for them," said acting Ukrainian President Oleksandr Turchynov.

"The commanders and crews are ready to defend their ships. They are defending Ukraine," Turchynov said in a televised address to the nation after a military spokesman said Ukraine's corvette Ternopil and command ship Slavutych were being blocked by four Russian navy ships in the Crimean port of Sevastopol.

Vladimir Anikin, a Russian defense ministry spokesman, dismissed the accusation as nonsense but refused to elaborate.

In Washington, the State Department warned of a "dangerous escalation" and said the U.S. would hold Moscow directly accountable for any threat to Ukraine's navy.

Russia is "on the wrong side of history" in Ukraine, President Barack Obama said, adding that continued military action would be "a costly proposition for Russia." Speaking to reporters in the Oval Office, Obama said the U.S. was considering economic and diplomatic options that will isolate Russia, and called on Congress to work on an aid package for Ukraine.

Still, it was not clear what the West could do to make Russia retreat. The clearest weapon at the disposal of the U.S. and the EU appeared to be economic sanctions that would freeze Russian assets and pull the plug on multibillion dollar deals with Russia. Late Monday, the EU threatened to freeze visa liberalization and economic cooperation talks and boycott the G-8 summit in Russia later this year.

Already the economic fallout for Russia was being intensely felt. Russia's stock market dropped about 10 percent Monday and its currency fell to its lowest point ever against the dollar. But the economic consequences of antagonizing Russia were also acute for Western Europe. The EU relies heavily on Russian natural gas flowing through a network of Ukrainian and other pipelines.

Global market reaction to the Russian seizure was furious. On Wall Street, both the Dow Jones industrial average and the Nasdaq composite closed sharply down, while oil prices rose on fears that Russia, a major oil exporter, might face sanctions. In European trading, gold rose while the euro and stock markets fell.

The greatest impact, however, was felt in Moscow, where the main RTS index was down 12 percent at 1,115 and the dollar spiked to an all-time high of 37 rubles. Russia's central bank hiked its main interest rate 1.5 percentage points to 7 percent, trying to stem financial outflows.

Gazprom, the Russian energy giant, was also a big loser, its share price down 13 percent as investors worried how it would get its gas to Europe if hostilities kept up, since much of it goes through Ukrainian pipelines.

Moscow has justified its military moves in Crimea as necessary to protect its country's citizens living there. At an emergency session of the Security Council on Monday, Russia's U.N. ambassador, Vitaly Churkin, told council members Russian troops were deployed at the request of Yanukovych.

Reading a statement he said was from the fugitive president, Churkin said the request came because, "as the legitimately elected representative," Yanukovych believes "Ukraine is on the brink of civil war."

Churkin quoted Yanukovych as saying "the life and security and the rights of people, particularly in the southeast part in Crimea, are being threatened" and there were "open acts of terror and violence."

By Monday, it was clear that Russia had complete operational control of Crimea.

Russian soldiers controlled all Crimean border posts, as well as all military facilities in the territory. Troops also controlled a ferry terminal in the Crimean city of Kerch, just 20 kilometers (12 miles) across the water from Russia. That intensified fears in Kiev that Moscow would send even more troops into the peninsula via that route.

Border guard spokesman Sergei Astakhov said the Russians were demanding that Ukrainian soldiers and guards transfer their allegiance to Crimea's new pro-Russian local government.

"The Russians are behaving very aggressively," he said. "They came in by breaking down doors, knocking out windows, cutting off every communication."

He said four Russian military ships, 13 helicopters and eight transport planes had arrived in Crimea in violation of agreements that permit Russia to keep its Black Sea fleet at the naval base in Sevastopol but limits the deployment of additional forces at the base.

Ukraine's Prime Minister Arseniy Yatsenyuk admitted his country had "no military options on the table" to reverse Russia's military moves into Crimea.

He appealed for outside help and said Crimea remained part of his country.

"Any attempt of Russia to grab Crimea will have no success at all. Give us some time," he said at a news conference with British Foreign Secretary William Hague.

Hague said "the world cannot just allow this to happen." But he, like other Western diplomats, ruled out any military action. "The U.K is not discussing military options. Our concentration is on diplomatic and economic pressure."

Tension between Ukraine and Moscow rose sharply after Yanukovych was pushed out by a protest movement among people who wanted closer ties with the EU. Yanukovych fled to Russia after more than 80 people were killed near Kiev's central square. He insists he is still president.

Russian President Vladimir Putin's confidence in his Ukraine strategy is underpinned by the knowledge that the nation's 46 million people have divided loyalties. While much of western Ukraine wants closer ties with the 28-nation European Union, its eastern and southern regions look to Russia for support.

Crimea is where Russia feels most at home in Ukraine: It is home to 2 million mostly Russian-speaking people and landlord for Russia's critical Black Sea Fleet at Sevastopol.

___

Bennett reported from Kerch, Ukraine. Associated Press writers Lara Jakes in Washington, Yuras Karmanau in Kiev, Raf Casert and Juergen Baetz in Brussels, Frank Jordans in Berlin, John Heilprin in Geneva, Volodya Isachenkov and Laura Mills in Moscow and Danica Kirka in London contributed to this report.

CRISIS IN CRIMEA SHARPLY DIVIDES SMALL TOWN

Tuesday, 04 March 2014 06:29 Published in National News

NOVO-OZERNE, Ukraine (AP) — For years, the little Crimean town was closed off from the rest of the world, a secretive community, at the edge of a key Soviet naval base, sealed by roadblocks and armed guards.

Today, to get to Novo-Ozerne, you just follow a pitted two-lane road far into the Crimean countryside, past collective farms abandoned decades ago and villages where it's hard to see any life, even at midday.

There's not much in town anymore, just the occasional ship that has sailed up the Black Sea inlet to this isolated spot, a handful of crumbling navy buildings, and an armory ringed by barbed wire.

But the Russians want it.

And the little forgotten town is now sharply divided, torn between those who welcomed the arrival here over the weekend of dozens of Russian soldiers wearing unmarked uniforms, and those who back the Ukrainians who are refusing to surrender their weapons.

"We know who they are and we see (what they are doing) as terrorism," said Sergei Reshetnik, a local businessman furious over the Russians' arrival. "We just want to live quietly."

The standoff in Novo-Ozerne between Russian and Ukrainian soldiers is a scene playing out across Crimea, days after Moscow effectively seized political power across the strategic Black Sea peninsula, establishing a pro-Russian regional government backed up by hundreds — perhaps thousands — of soldiers. The seizure of power came after months of street demonstrations in the capital, Kiev, which forced out Ukraine's president, the pro-Russian Viktor Yanukovych. The new government has taken a sharp turn away from Moscow, and is eager to form closer ties to the European Union.

But if Russia expected the Ukrainian military to go easily, handing over its weapons as soon as it was asked, things turned out far more complicated. Instead, military installations across Crimea — many of them surrounded or taken over by Russian forces — have refused to surrender, raising the tension and leading to fears of all-out combat. Ukraine's new government has ordered the bases to remain loyal to Kiev.

In Novo-Ozerne, the standoff had turned into an impasse by Monday afternoon. After the initial confrontation, the Russians had moved most of their forces away from the base and into an abandoned building, leaving about a dozen heavily armed soldiers in hurriedly built trenches outside the armory.

The commanders have talked a few times, trying to avoid the chance of accidental bloodshed, and things often looked fairly normal, with soldiers, their wives and girlfriends passing easily in and out of the main Ukrainian base.

Outside the armory, members of pro-Russian self-defense groups — which have often worked closely with the Russian military — set up a perimeter to search vehicles leaving the compound.

They were thrilled at the Russians' arrival.

To them, what happened in Kiev was a coup staged by anti-Russian fascists who they fear will punish the ethnic Russians who dominate this part of Ukraine. So, they said, they were making sure no weapons made it out of the armory.

"We don't want to become another Yugoslavia here," said Alexei Maslyukov, a local resident who organized the checkpoint, barely 50 feet (15 meters) from where masked Russians watched with automatic weapons.

In many ways, what happened in this town is unusual. Crimea was a crown jewel of the czarist and Soviet empires, and ethnic Russians moved here in droves over the years. After the fall of the Soviet Union and Ukraine's independence, many Crimeans continued to see themselves as more Russian than Ukrainian.

By all appearances, most Crimeans have welcomed the Russian military, and given only scattered support to the Ukrainian soldiers.

But this town, which outwardly is just another vision of post-Soviet decay, with its identical concrete-block apartments and empty storefronts, is shockingly diverse. There are Russians and Tatars, the Turkic people who once dominated Crimea. There are Azeris, Gypsies and Jews. Few of these people have any loyalty to Moscow.

The village, which once numbered more than 12,000, now has fewer than half that many people. The Soviets took most of their ships and equipment with them at independence, leaving the naval installations little more than piles of concrete and decades-old weaponry.

"Whatever they didn't want, that's what they left here," said Reshetnik, the local businessman.

The town now depends on summer tourists for much of its income. The population almost doubles again during the key summer tourist months, with thousands attracted by the chance of a cheap holiday along the water.

Many fear the standoff could scare away the travelers.

"The tourist season will be totally screwed," grumbled Reshetnik. "People are already broke."

Dozens of local residents turned out early Monday to demonstrate their support for the Ukrainians, with many shouting angrily at Russian soldiers to leave the base's main gate. And, in fact, the Russians did soon withdraw.

That fact made the base's acting commander smile.

"Talking to them, I know that they are ready to come here and stand as defense between us and the Russians," said Vadim Filipenko.

His forces are clearly outgunned. The Ukrainian soldiers are ready for an attack, standing at the main gate with their fingers just off the triggers of their AK-47s.

But the armored vehicle parked behind them, with its spray-painted tires and splotches of rust, appears to have been used for decoration until just a few days ago.

___

Follow Tim Sullivan on Twitter athttp://www.twiter.com/SullivanTimAP

OBAMA'S 2015 BUDGET APPEALS TO DEMOCRATS

Tuesday, 04 March 2014 06:28 Published in National News

WASHINGTON (AP) — Striving for unity among Democrats rather than compromise with Republicans, President Barack Obama will unveil an election-year budget on Tuesday that drops earlier proposals to cut future Social Security benefits and seeks new money for infrastructure, education and job training.

But Obama's almost $4 trillion budget plan is likely to have a short shelf life. It comes just three months after Congress and the White House agreed to a two-year, bipartisan budget pact that has already set the parameters for this election year's budget work. Democrats controlling the Senate have already announced they won't advance a budget this year and will instead skip ahead to the annual appropriations bills for 2015, relying on new spending "caps" set by December's budget deal that provide $56 billion less than what Obama wants in 2015.

Obama would divide the extra money equally between the Pentagon and domestic initiatives like boosting manufacturing hubs, job training and preschool programs and cutting energy waste. Republicans are likely to balk at the idea, which would be paid for by curbing special interest tax breaks and making spending cuts elsewhere in the budget.

Obama has also announced a four-year, $302 billion plan to boost spending on highways, rail projects and mass transit. Half of the initiative would be financed through corporate taxes. Funding for highway and mass transit projects expires at the end of September, and there's bipartisan interest in finding a supplemental funding stream to augment stagnant revenues from the $18.4 cents-per-gallon gasoline tax.

Obama's budget arrives after a tumultuous year that began with Obama muscling through a 10-year $600 billion-plus tax increase on upper-bracket earners. Feeling stung, Republicans refused to yield on about $80 billion in automatic spending cuts that began in March. Then, conservatives in the GOP forced a 16-day partial government shutdown over funding to implement the nation's new health insurance program. The small-bore, two-year budget deal struck by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., emerged from the wreckage to alleviate the toughest automatic cuts.

With no design or expectation of luring Republicans into more budget negotiations in this election year, Obama's blueprint presents his vision for boosting job growth and favored initiatives like education. The White House announced earlier Obama was dropping a plan opposed by most Democrats in his budget proposal a year ago to slow Social Security cost of living increases.

The budget also will flesh out a plan Obama announced in his State of the Union address to expand the earned income tax credit for childless workers, helping more than 13 million. It would also boost the tax credit for child care and help people sign up for individual retirement accounts.

"This year the administration is returning to a more traditional budget presentation that is focused on achieving the president's vision for the best path to create growth and opportunity for all Americans, and the investments needed to meet that vision," the White House said in a statement last month.

Republicans are sure to brush aside most of Obama's new initiatives. Ryan released a report Monday criticizing many federal anti-poverty programs, saying they should be redesigned to better help the poor escape poverty. It found that many poor people have little incentive to find work or work more because higher incomes mean lower benefits.

The success that Washington has had in curbing spending over the past several years has come mostly at the expense of "discretionary" spending for agency operating budgets approved by Congress each year. The $521 billion defense budget for this year amounts to 3.5 percent of the size of the economy, according to the Congressional Budget Office, down from 5.4 percent of gross domestic product 40 years ago.

Discretionary spending on nondefense programs has dropped from 3.9 percent in 1974 to 3.4 percent today. Meanwhile, autopilot spending on benefit programs like Social Security, Medicare, food stamps and insurance subsidies under the new health care law are growing rapidly as a percentage of the economy.

Obama's budget does little to arrest these trends. And it arrives as dropping deficits have sapped much of Washington's urgency for tackling the government's fiscal problems. The deficit fell to $680 billion last year — still large but far smaller than the $1 trillion-plus deficits that plagued his first term.

Obama's austere request for the Pentagon, including cuts to Army personnel, the National Guard and the much-criticized littoral combat ship and a move to retire the Air Force's A-10 fighter, has already provoked howls of outrage from defense hawks. Sen. Lindsey Graham, R-S.C., said Obama's proposal "guts our defense."

Defense Secretary Chuck Hagel said the $28 billion in extra defense money that Obama seeks would permit the Pentagon to increase training, improve aircraft and weapons systems and repair military facilities.

Obama will recommend tax changes that would generate billions in revenues to help pay for those initiatives. They include curtailing what the administration views as tax avoidance schemes by U.S. companies with profits earned overseas and by foreign-owned companies with operations in the United States.

One measure, according to administration officials, would limit the ability of companies to take advantage of differences in tax rules from country to country. A second would restrict the ability of multinational corporations to assign much of their debt to U.S. operations to take advantage of U.S. interest deductions. A third would classify as taxable the income from certain digital transactions that have escaped U.S. taxation.

The proposals are part of an international effort by leading economies to limit tax avoidance by multinational companies. Administration officials said the proposals in the budget would raise several billion a year and could be part of a broader tax overhaul that would be used to reduce corporate tax rates.

Obama is also likely to reprise a host of familiar tax increases such as limiting deductions for upper-income taxpayers and closing tax breaks for oil and gas companies. They have been routinely rejected in the past.

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