Putin ammo shortageRussia and China have just signed what is being called “the gas deal of the century”, and the two countries are discussing moving away from the U.S. dollar and using their own currencies to trade with one another.  This has huge implications for the future of the U.S. economy, but the mainstream media in the United States is being strangely quiet about all of this.  For example, I searched CNN’s website to see if I could find something about this gas deal between Russia and China and I did not find anything.  But I did find links to “top stories” entitled “Celebs who went faux red” and “Adorable kid tugs on Obama’s ear“.  Is it any wonder why the mainstream media is dying?  If a particular story does not fit their agenda, they will simply ignore it.  But the truth is that this new agreement between Russia and China is huge.  It could end up fundamentally changing the global financial system, and not in a way that would be beneficial for the United States.


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From The Economic Collapse Blog:

Russia and China had been negotiating this natural gas deal for ten years, and now it is finally done.  Russia is the largest exporter of natural gas on the entire planet, and China is poised to become the world’s largest economy in just a few years.  This new $400 billion agreement means that these two superpowers could potentially enjoy a mutually beneficial relationship for the next 30 years

Russia reached a $400 billion deal to supply natural gas to China through a new pipeline over 30 years, a milestone in relations between the world’s largest energy producer and the biggest consumer.

President Vladimir Putin is turning to China to bolster Russia’s economy as relations sour with the U.S. and European Union because of the crisis in Ukraine. Today’s accord, signed after more than a decade of talks, will allow state-run gas producer OAO Gazprom (GAZP) to invest $55 billion developing giant gas fields in eastern Siberia and building the pipeline, Putin said.

It’s an “epochal event,” Putin said in Shanghai after the contract was signed. Both countries are satisfied with the price, he said.

Of course countries sell oil and natural gas to each other all the time.  But what makes this deal such a potential problem for the U.S. is the fact that Russia and China are working on cutting the U.S. dollar out of the entire equation.  Just check out the following excerpt from a recent article in a Russian news source

Russia and China are planning to increase the volume of direct payments in mutual trade in their national currencies, according to a joint statement on a new stage of comprehensive partnership and strategic cooperation signed during high-level talks in Shanghai on Tuesday.

“The sides intend to take new steps to increase the level and expansion of spheres of Russian-Chinese practical cooperation, in particular to establish close cooperation in the financial sphere, including an increase in direct payments in the Russian and Chinese national currencies in trade, investments and loan services,” the statement said.

In my recent article entitled “De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar“, I warned about what could happen if the petrodollar monopoly ends.  In the United States, our current standard of living is extremely dependent on the rest of the world continuing to use our currency to trade with one another.  If Russia starts selling natural gas to China without the U.S. dollar being involved, that would be a monumental blow to the petrodollar.  And if other nations started following the lead of Russia and China, that could result in an avalanche from which the petrodollar may never recover.

And it isn’t just the national governments of Russia and China that are discussing moving away from the U.S. dollar.  For example, the second largest bank in Russia just signed a deal with the Bank of China “to pay each other in domestic currencies”

VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.

“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.

The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.

You can almost feel the power of the U.S. dollar fading.

A few months ago, when I wrote about how China had announced that itno longer planned to stockpile more U.S. dollars, I speculated that it may be evidence that China planned to start making a big move away from the U.S. dollar.

Well, now China’s intentions have become even more clear.

The Chinese do not plan to allow the United States to indefinitely dominate the globe financially.  In the long run, the Chinese plan to be the ones calling the shots, and that means that the power of the U.S. dollar must decline.

These days, instead of piling up mountains of U.S. currency, China has started accumulating hard assets instead.  In the past, I have written about how China is rapidly stockpiling gold, and it turns out that the Chinese have also been very busy stockpiling oil as well

China is stockpiling oil for its strategic petroleum reserve at a record pace, intervening on a scale large enough to send a powerful pulse through the world crude market.

The move comes as tensions mount in the South China Sea and the West prepares possible oil sanctions against Russia over the crisis in eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply.

The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels per day (bpd) in April, an all-time high.

Once upon a time, China was extremely dependent on the United States economically.  The same was true with most of the rest of the world.

But now economic power has shifted so dramatically that nations such as Russia and China are realizing that they don’t really need to be dependent on the United States any longer.

And with each passing year, the relationship between Russia and China is becoming stronger.  As Pepe Escobar recently observed, this emerging alliance is causing quite a bit of consternation in Washington…

And no wonder Washington is anxious. That alliance is already a done deal in a variety of ways: through the BRICS group of emerging powers (Brazil, Russia, India, China, and South Africa); at the Shanghai Cooperation Organization, the Asian counterweight to NATO; inside the G20; and via the 120-member-nation Non-Aligned Movement (NAM). Trade and commerce are just part of the future bargain. Synergies in the development of new military technologies beckon as well. After Russia’s Star Wars-style, ultra-sophisticated S-500 air defense anti-missile system comes online in 2018, Beijing is sure to want a version of it. Meanwhile, Russia is about to sell dozens of state-of-the-art Sukhoi Su-35 jet fighters to the Chinese as Beijing and Moscow move to seal an aviation-industrial partnership.

Meanwhile, the relationship that the U.S. has with both nations is quickly going sour.  The crisis in Ukraine has caused relations with Russia to drop to the lowest point since the end of the Cold War, and now China is deeply offended by charges that Chinese military officers have been involved in cyberspying on the United States

China on Tuesday warned the United States was jeopardizing military ties by charging five Chinese officers with cyberspying and tried to turn the tables on Washington by calling it “the biggest attacker of China’s cyberspace.”

China announced it was suspending cooperation with the United States in a joint cybersecurity task force over Monday’s charges that officers stole trade secrets from major American companies. The Foreign Ministry demanded Washington withdraw the indictment.

The testy exchange marked an escalation in tensions over U.S. complaints that China’s military uses its cyber warfare skills to steal foreign trade secrets to help the country’s vast state-owned industrial sector.

The divide between the East and the West is growing.

But the Obama administration has not figured out that we need the East more than they need us.

Right now, the number one U.S. export is U.S. dollars.  Our massively inflated standard of living is very heavily dependent on the rest of the world using our currency to trade with one another and lending it to us at super low interest rates.

If the rest of the world quits playing our game, our debt-based financial system will quickly fall apart.

Unfortunately, nobody in the Obama administration seems to have much understanding of global economics, and they will probably continue to antagonize Russia and China.

In the end, the consequences for antagonizing them could end up being far greater than any of us ever imagined.

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  1. http://www.bloomberg.com/news/2014-05-22/putin-s-singapore-dream-costs-crimea-banks-and-burgers.html?cmpid=yhoo
    Putin’s Singapore Dream Costs Crimea Banks and Burgers
    President Vladimir Putin is trying to transform Crimea into the Singapore of the Black Sea. That effort so far has cost Russia’s newest republic its entire banking system and all three of its McDonald’s.
    After Putin annexed Crimea in March, the government in Kiev banned all lenders operating under Ukrainian law from the region. Now almost every bank on the peninsula, from billionaire Igor Kolomoisky’s Privatbank, Ukraine’s largest, to Italy’s UniCredit SpA (UCG) has been shuttered. Unlike UniCredit, which is refunding deposits, Privatbank simply pocketed the cash, leaving its clients to seek compensation from Russia.
    Comment: More haircuts and nothing reported in the mainstream media. AGXIIK Thanks for the comments the other day. Just been really busy.
    “Thank God they decided to return my money,” said Alla Anisomova, a retiree in her 60s who gets by on less than $300 a month. Anisomova is among the thousands of people who have flocked to the former Privatbank branch on Lenin Street in Kerch, a city on the eastern edge of Crimea, to apply for redress from Russia’s Deposit Insurance Agency. The agency, which now controls the building, has pledged to return deposits of as much as 700,000 rubles ($20,000).

  2. http://wallstreetonparade.com/2014/05/lawyer-in-rigged-futures-market-battle-has-an-insider%E2%80%99s-keen-sense-of-trading/
    Lawyer in Rigged Futures Market Battle Has an Insider’s Keen Sense of Trading
    By Pam Martens: May 22, 2014

    R. Tarmara de Silva, a Lawyer in the Battle Against the Chicago Mercantile Exchange

    Three years before bestselling author Michael Lewis stunned the world on 60 Minutes on March 30 of this year with the announcement that “stock market’s rigged,” lawyer R. Tamara de Silva had made the case quite poignantly on her law firm’s blog. Even more importantly, she simultaneously called on the Securities and Exchange Commission and the Department of Justice to commence an investigation.
    It was only after the charges in the Lewis book, “Flash Boys,” went viral around the globe that the FBI, Department of Justice and SEC acknowledged that there might be a problem with high frequency trading and the integrity of U.S. markets. Subpoenas are now flying.
    On January 17, 2011 at 9:23 p.m., de Silva wrote on her blog:
    “High frequency trading firms make profits of almost $21 billion a year by using inside information to cheat.
    “High frequency trading firms (‘HFTs’) utilize a series of algorithms to take advantage of the computers’ speed and proximity to the marketplaces to get information about orders and price before every other market participant. The physical exchanges like NYSE, NASDAQ and CBOE lease out space to HFTs that allows HFTs to place their supercomputers directly next to the supercomputers of the exchanges thereby giving the HFTs advantages of milliseconds and microseconds — to see price and order information (inside information) before anyone else that is not paying for co-location and does not have a supercomputer with algorithms at the physical exchange…
    “One example of unabashed front running acknowledged to be a ‘trading’ strategy of the HFTs is the use of flash orders. The exchanges pay rebates to traders who post bids and offers to buy and sell shares of a stock. They also charge fees to market participants who respond to these posted bids and offers. The systems of rebates creates an incentive for HFTs to post bids and offers, which they can almost instantly cancel or route their bids and offers to another marketplace, having collected the rebate, before they are accepted because they can see the order from the slower acceptor of the bid and offer coming. This allows the HFTs to collect rebates and artificially drive the price of a stock up or down…
    “Lastly, the HFTs because of their position to cheat are not assuming any market risk — the ability to see price and order information before everyone else and to act on it means that they ‘cannot lose.’
    “The SEC and the United States Attorneys Office should look at the arbitrage practices of the HFTs for what they are — cheating. The fact that 73% of trading volume results from the arbitrage activities of HFTs should not lead them to be considered another industry ‘too big to fail.’ Yet, there is a very real possibility that even the SEC and unsophisticated legislators believe that regulating a de facto illegal enterprise that accounts for so much of trading volume may harm the markets.” (Read the full post here.)
    R. Tamara de Silva is the lawyer who on April 11 of this year filed a closely watched case in Chicago charging the CME Group and the Board of Trade of the City of Chicago with facilitating the rigging of the futures market by high frequency traders. The case was filed as a class action by futures traders William C. Braman, Mark Mendelson and John Simms. De Silva is joined on the suit with lawyers Michael C. Moody, Michael J. O’Rourke, and Robert E. Williams of the Chicago law firm, O’Rourke & Moody. (See High Frequency Trading Lawsuit Against CME Group, et al for the full text.)
    The CME Group owns the Chicago Mercantile Exchange (CME), the largest futures exchange in the world, as well as the Board of Trade of the City of Chicago (C-B-O-T), New York Mercantile Exchange (NYMEX), and Commodity Exchange (COMEX). The CME Group is represented by the Wall Street powerhouse law firm Skadden, Arps, Slate, Meagher & Flom, LLP.
    A key attorney for Skadden Arps in the case in Albert L. Hogan III, who has previously represented the CME Group. Hogan has also represented Ameriprise Financial in enforcement matters before the SEC and industry self-regulator, FINRA, in mutual fund sales practices matters. Another financial services client is Bank of America, whom he is representing on an ERISA class action.
    Skadden Arps, with its 1600 lawyers and 23 offices, might typically be viewed as an insurmountable force. But de Silva is a uniquely qualified lawyer for a case such as this: she previously worked as a trader on the floor of the CBOT in the 90s and can fashion the arcane jargon of how the markets have been rigged into content digestible to a Federal judge and jury.
    In a press release announcing the case on April 11, the plaintiffs’ lawyers wrote: “While it is true that the facts alleged in the Plaintiffs’ lawsuit have been reported, written about and observed by many disparate market participants, we commend the Plaintiffs for being the first to fight back. The integrity of the markets is a core national interest one that is vital to the United States economy. Opaque market practices that distort price information erode public participation and trust, and will ultimately lessen the credibility, security and stability of our financial markets.”
    According to industry sources in Chicago, the three traders have received an outpouring of support from their peers for having the temerity to challenge the corrupt practices in a Federal court case. Chicago traders who grew up in these markets and are frequently the second or even third generation in their family to work at the exchanges understand that entrenched corruption benefits no one over the long haul.
    The case is Braman et al v CME Group Inc et al, and was filed in the U.S. District Court for the Northern District of Illinois. The Civil Docket for the case is #: 1:14-cv-02646. The case has been assigned to Judge Charles P. Kocoras.

  3. Is the SEC Chair Prejudicing the Justice Department and FBI on High Frequency Trading Cases?
    SEC Chair Mary Jo White may have prejudiced ongoing criminal investigations of high frequency trading by the Justice Department and FBI by delivering her verdict on Tuesday that “The markets are not rigged.” Why the former chair of the litigation department at Debevoise & Plimpton would pre-judge an investigation by her Federal colleagues that is just getting underway should be a matter of great public concern. (The New York State Attorney General, Eric Schneiderman, has also opened an investigation.)

  4. http://wallstreetonparade.com/2014/04/jamie-dimon%E2%80%99s-top-women-and-their-missing-licenses/
    The situation with Blythe Masters is even more puzzling. Masters, who has worked at the bank for 27 years and announced her resignation this month, was named to the post of head of Global Commodities in 2007 and has held that post ever since. Masters has never held a Series 3 license to trade commodities nor a Series 30 to supervise commodity traders according to industry records.
    Even more puzzling, according to Financial Industry Regulatory Authority records, Masters is employed at JPMorgan Securities, LLC, a broker dealer – not the bank — and holds a full roster of securities licenses – but no commodity licenses.
    According to the firm’s web site: “Blythe Masters is J.P. Morgan’s head of Global Commodities, responsible for the global team that provides integrated physical and financial commodity solutions products for clients. The business provides market-making, structuring, risk management, financing and warehousing capabilities across a full spectrum of commodity asset classes.”
    Despite the reference to a “full spectrum” of commodity asset classes, the National Futures Association shows that Masters was approved only as a principal for JPMorgan Ventures Energy Corporation on February 20, 2013. Commodities trading encompasses far more than just energy, e.g., metals, agricultural products, etc.
    Last July, the Federal Energy Regulatory Commission fined JPMorgan $410 million for manipulating power markets in California and the midwest. Masters oversaw the division that was charged with the manipulation.
    Today, the Wall Street Journal has a front page article revealing its findings that Wall Street employees who repeatedly failed the required exam to sell securities “have on average worse disciplinary records.”
    What about those who never take the licensing exams at all?

    Goldman Sachs Drops a Bombshell on Wall Street
    The caribou have vanished on Wall Street and the wolves are in a feeding frenzy against each other. Yesterday, the Wall Street Journal reported that Goldman Sachs is considering shuttering its Sigma X dark pool, a business that brought in $7.17 billion from equity trading in 2013, before accounting charges.
    There are only three reasons that a Wall Street mega bank shutters a $7 billion business instead of selling it: it’s crazy; its regulators told it to shutter it; there’s more bad news ahead about this business and the firm is trying to get out in front of the fallout. We know Goldman Sachs is only crazy like a fox, so that leaves options two and three.
    On March 13, Bloomberg News reported that Goldman Sachs sent refund checks to some of its customers for trades that had occurred in August 2011 where it had failed to execute trades at the National Best Bid and Offer (NBBO), a requirement under U.S. securities laws. Whether that is happening routinely within dark pools is anyone’s guess since…well, they’re dark…and the Securities and Exchange Commission still doesn’t have a consolidated audit mechanism able to keep up with the market it is charged with overseeing.
    What triggered this benevolent refund action on the part of Goldman Sachs has yet to be explained. Who discovered the errors is left unanswered as is why we are just learning about something that occurred in 2011 three years later.

  6. M-3 Growth rates …

    America: 17.1 Trillion dollars; +/- 2x in past 10yr.
    China: 110.7 Trillion yuan; +/- 4x in past 10yr.
    Russia: 3 Trillion rubles; +/- 6x in past 10yr.

    So, why are we setting Russia and China on pedestals? Their currency inflation rates FAR exceed America’s, as horrific as it is.

    In truth, none of these governments have said a word about dissolving the core evil dooming the world economy … the banknote scheme of infinite co-generation of inflation and debt.

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