Speculation

Gas is overpriced. We've all seen the very rapid increase in prices at the pump. Many people claim that this is due to increased demand. Well then why did the prices go up much faster than the demand did? And now, demand is actually decreasing due to the high prices, but the prices are still going up. Obviously there is something else affecting prices here.

Big investors are always looking for the next big thing. There was the tech stocks in the 90s, then mortgages and making up new mortgage products to make them look lower risk than they really were, and now we have commodity speculation. Buying billions of dollars of a commodity acts like increased demand, and causes the price to go up.

"The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price."http://www.globalresearch.ca/index.php?context=va&aid=8878

Not only is this causing rising oil prices, but speculators are driving up the cost of food as well (and the cost to transport the food). Since they don't seem to care that rising food prices are hurting the poor throughout the world, they need some incentive to not be horribly unethical monsters. Perhaps the threat of going to jail?

Here's an idea: how about making a law that says that if you buy commodities you have to take delivery of those commodities. (Such a law was recently proposed by Rep. John Larson, D-Conn). Where are they going to store the billions of dollars worth of oil, corn, rice, stuff? Some argue that speculators would just move to other markets, but it seems many in Europe want to limit speculation as well. Plus, a lot of the speculators are hedge funds and pension funds in the US, and I imagine that many of those investors would like to continue living here (out of prison), and would choose to stop speculation when that type of speculation became a crime. They would move on to the next big thing.

In the mean time we have two new bills that don't really do much and we await the Commodity Futures Trading Commission's report that is due out on September 15th. http://money.cnn.com/2008/06/27/news/economy/congress_speculation/?postversion=2008062715
Congress might address this issue after the 4th of July. Hopefully they'll get something done and not just argue about more drilling or windfall profit tax.



http://www.spiegel.de/international/world/0,1518,559550,00.html
http://money.cnn.com/2008/06/24/news/economy/oil_legislation/index.htm?postversion=2008062413
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/26/cnoil126.xml
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/26/cnsoros126.xml

and the pretty graph is from http://zfacts.com/p/35.html