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I probably don't need to tell you how much gas prices have spiked recently. My small town has only one gas station, and Gas there is now $3.95 a gallon. Economists are worried that the stratospheric gas prices could slow or even halt the economic recovery. Why so high?

Now Commodity Futures Trading Commission's Chairman Gary Gensler reports that speculators have "swamped" the oil and wheat commodity futures markets, sending prices skyrocketing.  

Key regulator: Speculators swamping oil, grain markets

Gensler cited May 31 data that show end-users accounted for just 12 percent of the "long" positions in futures contracts for benchmark West Texas Intermediate crude oil. Long positions are bets that prices will rise in the future. That means that 88 percent of bets on price hikes for oil were held by financial players_ mainly Wall Street banks and hedge funds that invest for the ultra wealthy — not interests seeking to use the oil.

The trend was the same for wheat futures traded on the Chicago Board of Trade, Gensler said; there end-users represented just 10 percent of trades betting that prices would keep rising months out — or "long" positions. Wheat prices, like oil, have soared this year.

This May 31 data suggests that huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices.

High food prices were a big factor is driving the recent political upheavals across the Middle East.

See:Profiting from Egyptian Hunger & Failure of US's stability centric Foreign Policy  

World Food Prices hit all time High World's Poorest on edge of survival

Even higher food prices are likely to fuel even more political upheavals in the Middle East, and could spread it to other regions.

Republicans are claiming that restrictions on drilling are driving up gas prices so that they can get rid of regulations on the oil companies.

Republicans are also trying to tie the hands of regulators at the CFTC by slashing funding for the Commission to prevent it from acting to curb out of control speculation, by reimposing trading caps on speculators for the first time since 2001. Last year's Dodd-Frank Act gave the CFTC new authority to curb excessive speculative activity in the commodity futures trading market.  

Gensler warned that Republicans in Congress have tried to slash CFTC funding in a bid to thwart its new regulatory powers, and Wall Street firms are furiously lobbying to delay new rules.

Gensler said that the CFTC's mandate has been expanded seven-fold, and it needs more resources, not less, to do its job. "If the agency's funding does not grow — or worse, gets cut — we would be unable to enforce new rules" to protect the public, he said.

O.P.E.C. estimates that speculators are adding 15% to 20% to the price of oil.

Republicans are only pretending to be upset about high gas prices, while they try to keep the door open for even higher prices  The fact is Republicans are content to watch wealthy speculators push gas prices higher and higher.

Pay no attention to that speculator behind the curtain!

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Comment Preferences

  •  Republicans to higher gas prices: "Bring it on!" (18+ / 0-)

    Plutocracy too long tolerated leaves democracy on the auction block, subject to the highest bidder ~ Bill Moyers

    by Lefty Coaster on Fri Jun 10, 2011 at 12:51:02 AM PDT

  •  The speculation is justified (3+ / 0-)
    Recommended by:
    fly, Andhakari, leevank

    Look at the flooding and the droughts. The USDA is already predicting fewer agricultural commodities will come to market. With the mid east up in flames who knows what will happen with oil. China is buying much more oil than just a few years ago. So speculation is justified. Just how high may not be, but then the speculators should take losses. Ah but we protect them from losses. That is the problem, not the speculation.

    Practice tolerance, kindness and charity.

    by LWelsch on Fri Jun 10, 2011 at 01:59:35 AM PDT

    •  Speculation can cause price bubbles which (4+ / 0-)
      Recommended by:
      semiot, JesseCW, jfromga, Lefty Coaster

      have a dramatic impact on the world's poorest. We see a 10 cent rise in wheat, not that big a deal. The poorest see a 25% increase in their meager food budget.

      If food companies and farmers are in the futures market to stabilize price increases, I understand. The "naked speculator" can take his lumps, which we will soothe, but he also may be able to corner a market, like Enron, which did nothing but attempt to make money off of people's misery. In the end there is really no way to corral speculation without international agreements.

      Man is a Reasoning Animal. Such is the claim. I think it is open to dispute. - Mark Twain

      by the fan man on Fri Jun 10, 2011 at 04:08:36 AM PDT

      [ Parent ]

    •  No. The speculation is the problem. (3+ / 0-)
      Recommended by:
      banjolele, jfromga, Lefty Coaster

      There's always some asshole playing with other peoples money who will take the risk, even if they have to "take the losses".

      The pay-off is making tens of millions a year, the downside is maybe losing their job.

      The people they price out of the market for actual food?

      The downside for a lot of them is watching their children die of starvation.

      "That's what Slink gets for commenting around with those short one-line posts and wearing all of those liberal ideals."

      by JesseCW on Fri Jun 10, 2011 at 05:45:07 AM PDT

      [ Parent ]

    •  I disagree. (3+ / 0-)
      Recommended by:
      jfromga, Lefty Coaster, dirtfarmer

      Since the 30's and up until the "Commodoties Futures Modernization" passed by congress, regulations kept commodities from runaway speculation and bubbles. There is a reason for this. The entire point of a commodoties market is to have a stable place for sellers to sell and buyers to buy. That means that the wheat growers could expect to be paid a relatively predictable amount, and the buyers could also expect to pay a relatively predictable amount when they need the product. This made it so that businesses that need grain for their product could budget for future purchases, and growers could expect an income. Again, the entire point of the market is to offer stability.

      When the regulations were stripped, it made room for betting long, shorting and generally manipulating the market with money, for money. The people making money on this are not manufacturing or producing anything of value.

      Yes, the wheat crop is stressed. Yes, according to supply and demand, that should make the price go higher. But speculation drives prices even higher than that, and, if Goldman Sachs follows its pattern, those prices will be shorted in the next year or so. After they inflate the bubble, they will pop it.

      Its legal now, thanks to congress. But it isn't justified, any more than it is justified when war profiteers horde food from starving civilians, waiting for the highest bid. It is going to hurt everyone on this planet who isn't a billionaire.

      "YOPP!" --Horton Hears a Who

      by Reepicheep on Fri Jun 10, 2011 at 06:43:29 AM PDT

      [ Parent ]

    •  Taxes and regulatory environment (0+ / 0-)

      Makes commodities speculation a better return on the dollar, than building a factory that builds wind turbines.

      Some speculation is acceptable, but far too much capital is engaged in speculation, 3 to 4 times the value of the commodity.

      We used to use taxes to choose winners and losers, giving the wealthy tax breaks for investing in emerging tech, thats why the top Ind rate was 70 to 94% but with exemptions and breaks that made the effective rate something in the 30 to 37% range.

      That tax policy encouraged smarter and more long term investment and was far more effective at creating jobs in the US.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Fri Jun 10, 2011 at 11:33:11 AM PDT

      [ Parent ]

  •  I think... (6+ / 0-)

    it's a result of having so much imaginary money floating around up at the top, people are always looking for something to do with it, jumping from the last fad to the next.

  •  Population is growing (1+ / 0-)
    Recommended by:

    Arable land is shrinking, fresh water is becoming scarce while temperatures go up, and coal and oil are getting harder to find.
    I won't discount the willingness of speculators to do evil for the sake of a few extra bucks, but prices, scarcity, hunger, and desperation are all growth markets regardless.

    "I almost died for the international monetary system; what the hell is that?" ~ The In-laws

    by Andhakari on Fri Jun 10, 2011 at 04:47:57 AM PDT

    •  no one has argued (1+ / 0-)
      Recommended by:
      Lefty Coaster

      oil would be $25 a barrel if not for speculators.   The argument is that $90 barrel oil becomes $115 barrel because of speculation and that speculation tax on the poor is regressive and destructive of economic justice.

      Because people always do it is no justification and we should attempt to regulate theft by sophisticated economic investors.

      •  I don't disagree with you (1+ / 0-)
        Recommended by:
        Lefty Coaster

        but I can tell you that my brother made his living trading futures for number of years. He had a nice house on the lake and a Corvette in the garage, etc etc, but speculation bites back more often than not. These days he's busting his ass working in the real world trying to make enough to retire on, just like all the Democrats he detested for so long.
        You hear about the big payoffs and bonuses, but for what little it's worth, the bottoming out is just as or more common. Even so, they deserve the hard landings - and an occasional crash.

        "I almost died for the international monetary system; what the hell is that?" ~ The In-laws

        by Andhakari on Fri Jun 10, 2011 at 08:39:10 AM PDT

        [ Parent ]

  •  Tis an ill wind indeed that blows nobody any good. (1+ / 0-)
    Recommended by:

    I note that farmers in my area planted a lot of spring wheat this year, when in the past those fields were corn or soybeans. Hope they sell their crop before the bubble bursts.

    Courage is contagious. - Daniel Ellsberg

    by semiot on Fri Jun 10, 2011 at 04:50:01 AM PDT

  •  Blame Bernanke (0+ / 0-)

    He's handed out a lot of free money at the Fed in the last year that the wealthy get to play with.

  •  Nobody has yet explained to me how speculation ... (0+ / 0-)

    can produce a rise in the underlying price of the commodity.  I've never speculated on commodities, because prices are way too volatile for my risk tolerance, but if you're long oil or wheat on a contract with an expiration date of, say, 10/1/11, it represents an agreement to buy the actual "stuff" on that date.  As the date approaches, you've got to either be ready to buy it, or you've got to sell the obligation to take the actual "stuff" to somebody else.

    Excessive speculation may increase price volatility over the short term, but most economists (including as eminent a one as Paul Krugman, who is certainly no apologist for the big money guys) don't think it can drive prices for the real stuff over any substantial period of time.

    There are sound fundamental reasons for both oil and grain prices to be increasing, and they have nothing to do with speculation.  If we're not at "peak oil," we're probably pretty close, and yet the world's economy (particularly in the developing countries) demonstrates an ever-increasing demand for oil.  I have no doubt that, barring an economic calamity that destroys demand, today's oil prices will look cheap in another 10 or 20 years, even adjusted for inflation.

    As for wheat, the world's population is growing, and people (again, especially in the developing world) are showing an increasing appetite for Western-type diets.  We've brought just about all of the arable land into production.  We also seem to be reaching the limit on our ability to increase yield per acre by doing more irrigation or pouring on more fertilizer and other chemical inputs.  I heard an interview with Lester Brown the other day where he said that world grain stocks are actually lower now than their already-low levels of last year. When you have increasing demand and a relatively inelastic supply, it's Economics 101 that prices are going to rise.

    PROUD to be a Democrat!

    by leevank on Fri Jun 10, 2011 at 06:28:00 AM PDT

  •  My understanding is that if you or I want to (3+ / 0-)
    Recommended by:
    Reepicheep, Lefty Coaster, dirtfarmer

    trade oil futures, we can. No expert, but I recently watched an interview on CNBC with an oil analyst. He stated that margin requirements in the oil futures sector were ridiculously low.

    An individual trader, hedge fund or institutional trader could "control" hunderds of thousands of dollars, even a million dollars, worth of oil futures within the trading day. Thats nuts.

    So I could easily enter the oil market with $50,000 and trade the commodity 10-20 times WITHIN THE SAME TRADING DAY, with the only collateral being my $50,000, used over and over.

    "Free markets" allow for rampant speculation. I contend that free market ideology encourages, even requires, that wild speculation is tolerated. Hell, its expected! Because the markets are supposed to regulate themselves, with zero outside interference.

    The whole notion of free markets is laughable.

    Fuck Friedman and the Chicago School of eCON.

    Psst...Sarah Paylin is running for POTUS. You heard it here first. 5/27/2011

    by A Runner on Fri Jun 10, 2011 at 06:37:18 AM PDT

  •  I have 3 billion dollars (1+ / 0-)
    Recommended by:
    Lefty Coaster

    Why should I spend a half billion on factories to build solar panels, when I can engage in currency or commodities speculation?

    I see the solution as a tax policy issue and a regulatory issue.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Jun 10, 2011 at 11:24:40 AM PDT

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