Commodities price keep increasing, who are the speculators ? Who are the victims? How these bloody speculators play able to paly in the money games ?
Who are these heartless peoples who are earning billions of dirty money from the poors?
Why no politicians, mass media, economists, people with common sense voice out the truth of these dirty games or try to stop them?
Why all of them still lying to us? Giving us all kind of unrealistic information?
Why until today, there are no proper rules in banks, financial instutions and laws to prevent these type of bad intention speculating in all kinds of commodities, exchange rates…?
There are so many types of future options have been created by banks, financial institutions, trading campanies,…
Why until today, there are still no proper control in speculating using these tools call future options and they still name it hedging, free trade, ….?
I dont think the first answer posted here actually answered your question. It also seemed to be a sort of rant. I'm not an economist but I will give it a try:
It does seem offhand that speculation is what is driving the prices of commodity futures higher, especially oil and now some agriculture products. A knee-jerk reaction would be to step in as the govt. and fix prices on commodoties or pass some law to hurt or stop speculators. There are several problems with that approach:
1) Which govt? If the US govt. steps in and stops speculation on US exchanges for commodities, why wouldnt speculators just buy commodities futures from other exchanges? There are exchanges all over the world that trade commodity futures. The US is the big dog on the block so it may help some but then again there are other issues….
2) The US economy is in a downturn or recession or just plain feeling low. If the govt. stepped in and squashed the one area where investments are gaining it could have repercussion in other areas of the economy and make things even worse. For example, banks that heavily invested in real-estate are in a tailspin but that crash landing may be dampened by investments in commodities that gained money. If that gets taken away, it could mean the crash landing simply becomes a crash. That would be bad for the entire economy and make things even worse for the poor.
3) The media is whipping up food prices by causing hysteria. The more CNN and others bellow about the "Food Crisis" as if we are all one ego away from starving, the more speculators think "Hey! prices are going to go even higher!" In the grand scheme of things, food has not gotten that much more expensive (at least in the US, not sure about other countries). White bread is up 16 cents since last year. that sort of thing. Percentage-wise it may be a 20% increase or something but pocket-book wise its 16 cents. There was a story on CNN recently about a poor mother of 2 kids who made her own detergent. She had to because she washed like 12 loads of laundry a day or something like that. Not sure what detergent prices has to do with food prices but CNN featured that as an example of how we are all on the verge of starvation.
4) As is often quoted when it comes the the market: "what the wise do in the beginning, fools do in the end. " Speculation is a self-correcting aspect of the market. Just ask farmers and oil men. There is plenty of oil and food to go around. The big investors will shift their dollars out of commodities once there is something better to invest in and there will be a big correction. Just like with the internet bubble and the housing bubble. When your third-cousin Billy-Joe starts talking about investing in gold or oil because he heard its a good investment, look for the bubble to pop.
The idea of speculation, "market forces" (whatever the hell that means), bubbles, etc… may sound like a terrible way for "heartless" people to make money. But in reality it has been the best way to make sure everyone gets a piece of the pie. Once governments start price-fixing, shortages abound. In some really bad cases like Zimbabwe or Venezuela, the price fixing gets to a point that it simply doesnt make any sense for the farmer to grow some crops.
I agree with you that speculation in commodity markets can hurt people (high gas/food prices) and there should be some regulation to how its done but the ideal way to stop speculation is to have an incentive to move your money somewhere else. If US stocks start going up a lot of investors will shift their dollars to the stock market. Or if interest rates go up in the US, dollars will be put into treasury bonds. Right now the investment returns are in commodities, but dont worry. The commodity bubble will eventually 'pop' and people will look towards fundementals in those markets.
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January 11th, 2009 at 3:40 am
Feel better for ranting?
As you are clearly aware, the primary justification given for the commodities markets is the need for hedging. However offensive you might find speculating, and however great the percentage of trades in these markets that are actually speculations rather than hedging (well over 90%), there is still a real need for hedging.
So the first question you have to answer is, is there a way of satisfying the need for hedging while denying (or at least making far less attractive) the opportunities for the kind of speculation that you seem to be so passionate about?
Second, even given that the people you are criticizing deserve every adjective and every epithet you have used, where does that get you?
1. What incentive does anyone have for telling you the truth? What incentive does any politician have for telling the truth? If the history of democracies shows anything it is that most of the time most of the people prefer (and vote for) a convenient lie rather than a painful truth. Politicains lie and make promises they can't possibly fulfill because it is to their advantage to do so – it gets them elected!
2. Do you really want a world in which intentions are judged rather than actions? In which what is morally offensive becomes, because of that, illegal? One of the founding principles of the United States is that it is a republic – that means the government is constrained; people have rights; etc. Do you really want a society where the government can do whatever it wants, whenever it wants, independent of the law? or one in which the majority rules no matter what it does to the minority? This isn't to say that the government always obeys the rules, the law, or the Constitution, but isn't it better to have a Constitution that is occasionally flouted than not to have one at all?
We live in a capitalistic society. It has many flaws. It can be improved. But expecting people to behave contrary to their self-interest makes no sense. People claim to have tried to build societies based on altruism. None that have been tried seem to have lasted for very long. Are you proposing we try again? If so, why would you expect the result to be better? Are you complaining about human nature as it seems to exist? are you claiming that human nature can and should be changed? are you saying that human nature is inherently better than it seems to be? or are you just saying that because you don't like the results that you are seeing, there has got to be a better way?
On a larger scale, consider that just about every person on Earth is the descendant of people who killed others, stole lands from others, enslaved others, etc. How many are willing to give up their "ill-gotten gains"? or do they say that because it was their ancestors, not they themselves who committed the crimes, they should be allowed to keep the rewards?
And their ancestors? Some would say, "there was a drought; we were starving; if we didn't push the X off their land and take it over, we would have died". And in many cases, that would have been true. Does that justify the killing?
The obvious response to all this is, "It doesn't have to be that way." O.K., perhaps that's true. But just saying it doesn't make it true. Let's hear the result of some thinking on your part, some awareness of history and economics. Rants are so boring.
References :
January 11th, 2009 at 3:45 am
I dont think the first answer posted here actually answered your question. It also seemed to be a sort of rant. I'm not an economist but I will give it a try:
It does seem offhand that speculation is what is driving the prices of commodity futures higher, especially oil and now some agriculture products. A knee-jerk reaction would be to step in as the govt. and fix prices on commodoties or pass some law to hurt or stop speculators. There are several problems with that approach:
1) Which govt? If the US govt. steps in and stops speculation on US exchanges for commodities, why wouldnt speculators just buy commodities futures from other exchanges? There are exchanges all over the world that trade commodity futures. The US is the big dog on the block so it may help some but then again there are other issues….
2) The US economy is in a downturn or recession or just plain feeling low. If the govt. stepped in and squashed the one area where investments are gaining it could have repercussion in other areas of the economy and make things even worse. For example, banks that heavily invested in real-estate are in a tailspin but that crash landing may be dampened by investments in commodities that gained money. If that gets taken away, it could mean the crash landing simply becomes a crash. That would be bad for the entire economy and make things even worse for the poor.
3) The media is whipping up food prices by causing hysteria. The more CNN and others bellow about the "Food Crisis" as if we are all one ego away from starving, the more speculators think "Hey! prices are going to go even higher!" In the grand scheme of things, food has not gotten that much more expensive (at least in the US, not sure about other countries). White bread is up 16 cents since last year. that sort of thing. Percentage-wise it may be a 20% increase or something but pocket-book wise its 16 cents. There was a story on CNN recently about a poor mother of 2 kids who made her own detergent. She had to because she washed like 12 loads of laundry a day or something like that. Not sure what detergent prices has to do with food prices but CNN featured that as an example of how we are all on the verge of starvation.
4) As is often quoted when it comes the the market: "what the wise do in the beginning, fools do in the end. " Speculation is a self-correcting aspect of the market. Just ask farmers and oil men. There is plenty of oil and food to go around. The big investors will shift their dollars out of commodities once there is something better to invest in and there will be a big correction. Just like with the internet bubble and the housing bubble. When your third-cousin Billy-Joe starts talking about investing in gold or oil because he heard its a good investment, look for the bubble to pop.
The idea of speculation, "market forces" (whatever the hell that means), bubbles, etc… may sound like a terrible way for "heartless" people to make money. But in reality it has been the best way to make sure everyone gets a piece of the pie. Once governments start price-fixing, shortages abound. In some really bad cases like Zimbabwe or Venezuela, the price fixing gets to a point that it simply doesnt make any sense for the farmer to grow some crops.
I agree with you that speculation in commodity markets can hurt people (high gas/food prices) and there should be some regulation to how its done but the ideal way to stop speculation is to have an incentive to move your money somewhere else. If US stocks start going up a lot of investors will shift their dollars to the stock market. Or if interest rates go up in the US, dollars will be put into treasury bonds. Right now the investment returns are in commodities, but dont worry. The commodity bubble will eventually 'pop' and people will look towards fundementals in those markets.
References :