Economy

Imagine an oil tanker plowing through the ocean, hauling valuable cargo from resource-rich nations of the world to the countries that need it: but instead of oil, the tanker holds millions of gallons of fresh water.

It's not a vision from some futuristic film or doomsday novel, but the present-day intention of companies trying to launch the bulk water export business. The idea has been around since the 1990's, yet no one has succeeded in making it a practical reality.

But last July, the US company S2C Global Systems, Inc. became the latest bulk water wanna-be by announcing it would begin shipping water from Alaska to India within the next six to eight months. Using large class vessels that can hold 50 million gallons at a time, S2C plans to sell the water for both manufacturing and drinking purposes to countries around the Arabian Sea.

"I think it's a dream," said Peter Gleick, a scientist and international water expert, in an interview with SolveClimate News. Gleick is President of the Pacific Institute for Studies in Development, Environment, and Security. "I don't think bulk water transfers of any significant volume are ever going to happen, because the cost of moving water, especially across the ocean, is so high."

Rod Bartlett, managing partner of Alaska Resource Management (a partnership between S2C and True Alaska Bottling), told SolveClimate News that S2C is finalizing legal issues and logistics for a "World Water Hub" on the western coast of India. Once it's built, the hub will be a distribution point from which the company plans to deliver water to target destinations in the Middle East and northern Africa.

"Every nation within a four-day target of the hub is a potential customer or client that will need fresh water," said Bartlett. Without revealing specific details, Bartlett added that S2C has received both spoken and "written expressions of interest."

The water S2C plans to export will come from Alaska's Blue Lake near the city of Sitka, about 90 miles southwest of Juneau. Since 1999, Sitka has promoted itself as a source for bulk water exports; True Alaska Bottling owns the water rights to 8 million gallons per day from Blue Lake.

As to why humans would want to move water around the world, Bartlett explained: "(You move the water) because you can't move the population." Most of the world's freshwater is found near the Poles, while most people live closer to the equator.

Population growth, urbanization and irrigation place are creating increasing demand for water. But climate change is exacerbating the problem of supply, most notably in the Himalayan region, often referred to as Asia's water tower.

According to a report from King's College in London, about two-thirds of the Himalayan glaciers are shrinking, and decreased runoff will affect water levels in ten major rivers. All together, the rivers' drainage basins are home to 1.3 billion people—close to one-fifth of the world's population.

Many of them live in India. S2C originally chose to build their hub there because they couldn't find an appropriate port in the Middle East. But now, said Bartlett, "as you continue to look at the potential in India, it's going to be a natural place to sell water soon, no question about it."

Desalinated Water 18 Times Cheaper
The idea of moving vast quantities of water is hardly new. The Romans did it with aqueducts; today, California pipes the Colorado River's water hundreds of miles into its cities and farms. But when you ship water more than 1000 or 1500 miles, said Gleick, "the diesel costs kill you."

International water shipments do occur on small geographic scales. In 1997, Greece began shipping water to the island of Aegina, 13 miles from the Greek coast. Singapore currently imports freshwater from Malaysia but vowed to build desalination plants for increased water security. A plan for Turkey to sell water to Israel was recently suspended due to political tension between the two nations.

What S2C has proposed—moving water halfway around the world, 50 million gallons at a time—is on a scale that dwarfs existing bulk water transfer efforts.

The biggest problem, said Gleick, is that S2C will be competing with desalination plants, which are very popular in the Middle East. "Saudi Arabia and Kuwait are almost completely dependent on desalinated (sea)water."

Water from desalination plants costs about $1/cubic meter (this price includes the cost of building and running the plant), said Gleick. According to Bartlett, it will cost S2C $18/cubic meter to move the water from Alaska to India.

China and Russia plan to start trading in each other’s currencies as the world’s second-biggest energy consumer and the largest energy supplier seek to diminish the dollar’s role in global trade.

China may start trading its currency against the ruble within weeks, three bankers with knowledge of the matter told Bloomberg, and sent out a document last week allowing lenders to apply for ruble trading licenses, one of them said. Russia’s Micex Stock Exchange is making preparations to trade the ruble against the yuan in an initiative that has the backing of the country’s central bank, Ruben Aganbegyan, the head of the bourse, told reporters at a conference in Moscow today.

“Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency,” Bhanu Baweja, global head of emerging markets fixed income, currency and credit research at UBS AG, said in a phone interview from London. “It makes sense for two large economies to exclude a third, overly dominant economy from their trading equation.”

In the wake of the global financial crisis, which forced the U.S. economy into recession, both China and Russia have called for the dollar’s role in the financial system to be diluted. Volatility in major currencies is putting the global recovery at risk Zhang Ping, the head of China’s National Development and Reform Commission, said last month. President Dmitry Medvedev last year suggested Russia, holder of the world’s third-largest foreign-currency reserves, reduce its holdings of dollar.

Yuan-Ringgit Trading

The People’s Bank of China started yuan trading against the Malaysian ringgit between banks on Aug. 19. It already allows trading of the renminbi versus the dollar, the Hong Kong dollar, Japanese yen and the euro on its interbank market and China’s Foreign Exchange Trading Center provides daily reference rates for these currencies. The yuan is a non-deliverable currency that is managed by the central bank to prevent volatility.

‘Fully Convertible’

The ruble, which Bank Rossii targets against a dollar-euro basket, is a “fully convertible” currency and some Chinese banks have already been allowed to open ruble trading accounts, Russia’s Deputy Finance Minister Dmitry Pankin told reporters in Moscow today. The opening of cross-currency trade between the yuan and the ruble is more important for China, he said. “They are gradually allowing more currency operations with yuan,” he said.

China overtook Germany as Russia’s second-largest trading partner in the first six months of the year, helped by exports of Russian commodities such as aluminum, nickel and oil and gas. Trade between China and Russia jumped 50 percent to $30.7 billion in the first seven months of this year, compared with the same period in 2009, China’s Ministry of Commerce said in a statement on Aug. 21.

The world’s fastest-growing economy is seeking to eliminate the need to convert yuan holdings in to dollars before converting in to rubles to pay for Russian commodities, Baweja said.

Dollar Elimination

“China wants to reduce the volatility in its access to primary goods,” he said. “They want to reduce their dependence on the dollar in trade transactions.”

HSBC Bank (China) Co. and Bank of Communications Co. completed the first yuan-ringgit transactions, according to the Foreign Exchange Trading Center, which is affiliated with the central bank. The central bank was investigating the possibility of offering new currency pairs on the interbank market, including ruble, won and ringgit, an unnamed official at the center said in April.

“Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”

Here's something to munch on from Dennis K. Berman in last week's Wall Street Journal:

"Today, small investors are fleeing the equities markets in droves, according to data from the Investment Company Institute, pulling out a net $34 billion from stock funds so far this year.....They say, "I still feel like someone is screwing me......trading feels different than it used to."

Berman traces the problem to its source, the "inscrutable interplay between myriad exchanges and high-frequency traders, whose volume now accounts for an estimated two-thirds of all trading"..."a market that many perceive as tainted and prone to gaming by a cadre of insiders."

That sounds like a long-winded way of saying the market is rigged.

High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It's high-speed robo-trading that oftentimes executes orders without human intervention. HFT allows one group of investors to see the data on other people's orders ahead of time and use their supercomputers to buy in front of them. It's called frontloading, and it goes on every day right under the SEC's nose.

In an interview on CNBC, market analyst Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, "Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor."

Frontloading is cheating pure and simple, but rather than go after the "big fish" who run these enormous computerized skimming operations; regulators have been rolling up rogue traders who abscond with the trading code.

Here's a blurp from wired.com:

"Monday’s arrest of Samarth Agrawal, 26, came nine months after a Goldman Sachs programmer was arrested on similar charges that he, too, stole his employers source code for software, his employer used to make sophisticated, high-speed, high-volume stock and commodities trades.

“The Securities and Exchange Commission is investigating the use of these programs that many believe give their users an unfair advantage over other traders. Nevertheless, stealing the code to these suspect programs remains illegal. ("Second banker accused of stealing high frequency trading code", wired.com)

Right; so stealing from stock cheats who are gaming the system is against the law? Roger.

Today's market is configured in a way that the only reliable way to make money is by increasing volume and trading on myriad venues. We're talking about gains of mere pennies per trade on zillions of trades. The problem is that--when there's a glitch in the system--the high frequency bullyboys head for the exits taking an ocean of liquidity with them. That leads to a "flash crash" like the one on May 6 when the markets tumbled nearly 1,000 points in a matter of minutes. And, there's nothing to prevent a similar cataclysm from taking place in the future, because nothing's changed. The SEC still has its head in the sand.

There appears to be general agreement about the nature of the problem. Here's Berman again:

"When BlackRock Inc. surveyed 380 financial advisers earlier this summer about the flash crash, their perceptions said it all: The mayhem had been primarily caused by an "overreliance on computer systems and some types of high frequency trading" strategies that roam the market en masse, looking to pick off pennies of profit." ("A Market Solution That Put Investors in a Fix", Dennis K. Berman, Wall Street Journal)

No one wants to fix the problem, because then the big players would lose boatloads of money, and that just won't do. So the vehicle continues to speed faster and faster down the mountain veering wildly from one side of the road to the other. How long before it jumps the guardrail and plunges to the bottom of the canyon?

In the meantime, the managers of US polity, Mr. Barack Obama and Company, look to continue scattering goat innards on the new carpet in the Oval Office in their desperate seeking for a miraculous return to the non-stop celebration that was ringing through the nation a decade ago. Any moment now, the President will announce some new "program" aimed at propping up house prices -- in order, you understand, to allow banks to pretend that they are still solvent.

...

The so-called developed world is watching two giant forces race each other to put an end to business-as-usual for industrial civilization. These two forces are the catastrophe of debt and predicament of oil supplies. They had been running neck-and-neck for a few years, but now the catastrophe of debt is pulling slightly ahead. But even this is an illusion because these two forces are actually hitched in tandem, with the rickety cart of civilization bouncing perilously behind them, and whatever one of these forces does will affect the other. Bad debt will eventually cripple the global oil industry's ability to perform, and the failures of the oil industry will only amplify the killing force of debt. It's that simple.

And the simple moral of the story is that the only sane thing America can do is simplify itself, de-complexify its dangerously hyper-complex organs of daily life. I've stated them before but, briefly, this means simplifying the way we do farming, commerce, transportation, inhabiting the landscape, schooling, medicine, and banking. Everything we do to add additional layers of complexity to these already tottering systems will guarantee an eventual orgy of blood and material destruction to this land. Everything we do to prop up the unsustainable instead of reconstructing the armatures of everyday life will make American life a nightmare in a very few years ahead.

It must be the case that President Obama and the other denizens of high places do not have a clue what I might mean by all this -- though I am hardly the only one advancing this set of ideas and it is not really radical considering the alternatives. But our leaders' foolish intransigence insures a political convulsion that will follow the onset of an involuntary restructuring that can't be avoided anymore, because reality has mandates of its own, and is closer to God than all the hosts of our ridiculous politics.

A record number of people are living on government handouts in the US, as one out of six Americans now gets various anti-poverty supports, including food stamps.

A survey of state data by daily USA TODAY released on Monday showed that more than 50 million Americans are on Medicaid -- the federal-state program designed mainly to help the poor. That is an increase of at least 17 percent from December 2007, when the economic recession started.

"Virtually every Medicaid director in the country would say that their current enrollment is the highest on record," said Vernon Smith of Health Management Associates.

Government data for May indicates that the number of the people getting food stamps has surged to 40 million, a rise of almost 50 percent during the economic downturn.