Politics

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 top European official was accused of antisemitism tonight after declaring that there was little point in engaging in rational argument with Jews and suggesting that the latest Middle East peace talks were doomed because of the power of the Jewish lobby in Washington.

Karel De Gucht, the European commissioner for trade, and a former Belgian foreign minister, sparked outrage after voicing his scepticism about the prospects for the negotiations which opened in the US this week. He told a Belgian radio station that most Jews always believed they were right, and questioned the point of talking to them about the Middle East.

De Gucht, who negotiates for Europe on trade with the rest of the world, and is one of the most powerful officials in Brussels, was forced today to issue a statement declaring that the views he expressed were personal.

"Don't underestimate the opinion … of the average Jew outside Israel," he told the radio station. "There is indeed a belief – it's difficult to describe it otherwise – among most Jews that they are right. And a belief is something that's difficult to counter with rational arguments. And it's not so much whether these are religious Jews or not. Lay Jews also share the same belief that they are right. So it is not easy to have, even with moderate Jews, a rational discussion about what is actually happening in the Middle East."

Explaining why he thought the peace talks were probably doomed, he added: "Do not underestimate the Jewish lobby on Capitol Hill. That is the best organised lobby, you shouldn't underestimate the grip it has on American politics – no matter whether it's Republicans or Democrats."

Jewish leaders were incandescent. "This is part of a dangerous trend of incitement against Jews and Israel in Europe that needs to be stamped out immediately," said Moshe Kantor, the head of the European Jewish Congress. "What sort of environment allows such remarks to be made openly by a senior politician? Once again we hear outrageous antisemitism from a senior European official. The libel of Jewish power is apparently acceptable at the highest levels of the EU."

Officials in Brussels stressed the remarks did not represent EU views or policies. De Gucht was forced to issue a statement clarifying his remarks.

"I gave an interview … I gave my personal point of view," he said. "I regret that the comments that I made have been interpreted in a sense that I did not intend.

Psywar Trailer from S DN on Vimeo.

Iraq has between 25 and 50 percent unemployment, a dysfunctional parliament, rampant disease, an epidemic of mental illness, and sprawling slums. The killing of innocent people has become part of daily life. What a havoc the United States has wreaked in Iraq.

UN-HABITAT, an agency of the United Nations, recently published a 218-page report entitled State of the World’s Cities, 2010-2011. The report is full of statistics on the status of cities around the world and their demographics. It defines slum dwellers as those living in urban centers without one of the following: durable structures to protect them from climate, sufficient living area, sufficient access to water, access to sanitation facilities, and freedom from eviction.

Almost intentionally hidden in these statistics is one shocking fact about urban Iraqi populations. For the past few decades, prior to the U.S. invasion of Iraq in 2003, the percentage of the urban population living in slums in Iraq hovered just below 20 percent. Today, that percentage has risen to 53 percent: 11 million of the 19 million total urban dwellers. In the past decade, most countries have made progress toward reducing slum dwellers. But Iraq has gone rapidly and dangerously in the opposite direction.

According to the U.S. Census of 2000, 80 percent of the 285 million people living in the United States are urban dwellers. Those living in slums are well below 5 percent. If we translate the Iraqi statistic into the U.S. context, 121 million people in the United States would be living in slums.

If the United States had an unemployment rate of 25-50 percent and 121 million people living in slums, riots would ensue, the military would take over, and democracy would evaporate. So why are people in the United States not concerned and saddened by the conditions in Iraq? Because most people in the United States do not know what happened in Iraq and what is happening there now. Our government, including the current administration, looks the other way and perpetuates the myth that life has improved in post-invasion Iraq. Our major news media reinforces this message.

I had high hopes that the new administration would tell the truth to its citizens about why we invaded Iraq and what we are doing currently in the country. President Obama promised to move forward and not look to the past. However problematic this refusal to examine on the past — particularly for historians — the president should at least inform the U.S. public of the current conditions in Iraq. How else can we expect our government to formulate appropriate policy?