Making Political Sense: Speculators are our Friends
By: James Miller
Published 03/29/2011There has been a lot of talk on the left lately on the rise of gas prices.
While a number of factors causing the increase in fuel costs exists, MSNBC personalities Rachel Maddow and Ed Schultz have placed the blame squarely on Wall Street speculators.
These speculators, they argue, have been taking advantage of the lax regulation system our financial sector suffers from to drive up the cost of commodities.
Since gas prices have shot up mainly due to civil unrest in the Middle East and North Africa, a scapegoat must be found. What better group to blame than one inadvertently linked to Wall Street? Like anything smelling of Wall Street, speculators make a perfect target for progressive watch dogs.
The problem with this smear comes from a naïve understanding on the role of speculation. While not technically wrong in that speculators drive up the cost of commodities like oil, this seemingly greed-filled motive serves a special purpose in our economy.
Over 50 years ago, Henry Hazlitt wrote about the role of speculation in his best seller “Economics in One Lesson.”
In describing the adverse consequences of agricultural subsidies, Hazlitt points out the belief that farmers are ill-served by speculators who reap in the profits after food stuffs are unloaded on the market is completely illogical.
The real purpose of speculators is to foresee future supply shortages.
In our world of limited resources, certain products fluctuate in price more than others. These items tend to be heavily relied upon commodities such as food and energy.
Whenever shortages of goods such as wheat, cotton or oil are anticipated, prices are bid-up initially to ensure a steady rise rather than a sudden and drastic fluctuation.
The more accurate the forecast, the less drastic the price increase.
Bidding up the price of a highly fluctuating product ensures that there is a sufficient amount of supply to reach potential demand. Speculators not only serve those who they buy products from by taking on the risk of predicting future prices, but actually help consumers by preserving certainty in times of extreme uncertainty.
The truth of the matter is, that an increase in the price at the pump is being driven up by a number of factors. The civil war brewing in Libya is the main cause as anti-government rebels have secured much of the country’s oil drilling facilities. The Federal Reserve’s continued devaluation of the dollar has been driving up oil prices for decades.
Like agricultural subsidies, those in Congress ensure a healthy supply of campaign donations by offering tax breaks to big oil companies.
Tax breaks not only have the same effect as subsidies, they also pro- vide monetary compensation which entices the oil industry to keep supply artificially low to drive up the price.
Oil supply is also kept low by the federal government’s monopoly on 650 million acres of land plus 200 nautical miles of offshore coastline. All of this land contains vast reserves of oil which is kept off the market in the name of environmentalism.
Of course, if the ban on drilling on federal land was lifted, it would take years to accumulate the capital and establish the kind of complex infrastructure that makes oil drilling productive.
In the meantime, however, speculators would take the anticipation of the increase of supply into account and drive down prices today.
As easy as it is to blame Wall Street for high gas prices, the fact of the matter is that the actions taken by various government entities around the world are what impede an increase in the supply of oil.
Every dollar that is spent to pay for the ever-increasing price of gas is a dollar less than can be invested to develop cleaner and more efficient energy.
Speculators are our friends because they bear the risk of fluctuating prices onto themselves.
An institution that pushes up the price of a widely used commodity through monopolistic force hides under the guise of friendship.
With a friend like the federal government, who needs enemies?
Speaking of commodities, Bloomberg reports today that they are at two year high and silver hit a new $31 high today according to Reuters:
* Spot silver rose as high as $38.72 an ounce and was quoted at $38.68 an ounce by 0046 GMT, up 26 cents. Gold eased 45 cents to $1,436.10 an ounce.From Zerohedge:
* U.S. gold futures for June rose $4.5 an ounce to $1,437.5 an ounce.
* IShares Silver Trust (SLV.P) said its holdings rose to another record at 11,162.45 tonnes by April 4 from 11,139.52 tonnes on March 24.
LONDON (Reuters) - Libyan rebels will this week load the first tanker with crude since an uprising against leader Muammar Gaddafi fully suspended exports from the North African country, Platts news agency reported on Monday.Rag-tag rebels huh? I guess the CIA is helping a lot more than they are letting on. Michael Scheuer, a former CIA official, tells it like it is on CNN. You gotta love the "carrying water for Obama" line:
The agency said Liberian-registered tanker Equator was due to arrive in the rebel-held eastern Libyan port of Tobruk on Monday to load a cargo of Serir/Mesla blend crude oil.
And now comes the U.S.'s fourth war front:
(Reuters) - United Nations helicopters fired four missiles at a pro-Gbagbo military camp in Ivory Coast's main city of Abidjan on Monday, witnesses said.Remember who funds the U.N.'s military. If you want a good description of the military industrial complex, Tom Woods does a fantastic job:
I highly recommend Woods' book Rollback. The section on the health insurance industry in the U.S. is a real eye opener.
So I have recently taken interest in a kind of debate going on around various economic/financial blogs. Some, such as Zerohedge, Mish's Global Economic Trend Analysis, and Reggie Middleton of BoomBustBlog, are predicting that the U.S. is about to enter a long period of stagflation. Stagflation is of course a time of high unemployment, rising prices, and little economic growth. Some, such as Robert Wenzel of EconomicPolicyJournal, are predicting that we will begin to see high inflation with the unemployment rate dropping. Which one will happen? Beats me for now. The unemployment rate is dropping, but so are those participating in the labor force. Inflation is beginning to rear its ugly head, but QEII is suppose to end in June. Many doubt it will. Only time will tell which camp is right, but answers will probably come this fall.
One things is for sure though, the U.S. is on track to pass the debt ceiling by May 16, 2011, according to Timothy Geithner today. Lifting the debt ceiling will be like intervening militarily in other countries, both parties will come together in a "bi partisan" manner to push us further down our fiscally destructive path. Worse part is, CJ Maloney has a pretty convincing argument on why a return to the gold standard will be short lived in his RealClearMarkets column today:
Yet, an old proverb tells us "the people distrust what they do not understand", and the American people, both the man on the street and those "educated" in our institutions of higher learning, have been bamboozled for so long, so consistently into a knee-jerk hostility towards a gold standard that they would react with horror should it be reinstated. Particularly once the cleansing effects of the resultant deflation took hold, rather than ride it out the voters - particularly those who depend on government largess and hence deficit spending - would raise a hue and cry for a return to paper money.Maloney, though a gold bug, is probably right. The only way to facilitate a real return to the gold standard will be through quasi-market competition by legalizing the use of gold as an alternative to the dollar. Some states, such as Utah, are already opting for this as Maloney points out.
The voting booth would quickly crush any attempt to bring back what the masses do not understand, and the American people have little understanding of what money is.
If all of this is depressing, this might cheer you up. It's a bird! It's a plane! No wait, it's Stagflation Man! Big shouts to Reggie Middleton for this pic:
Tidak ada komentar:
Posting Komentar