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There is Nothing More Craven….
Than politicians running for office! What else would you call it when two smart men who have risen to the top of their profession make public pronouncements that are absolute nonsense? I speak specifically of Messrs. McCain and Obama who are pretty much falling all over themselves slamming “speculators” as a root cause of the current energy price spike. By the way, I intentionally don’t use the word “Crisis” which has become de rigueur these days every time something even marginally important happens. I think its gross overuse de-sensitizes us all and runs the risk of making us miss the real thing when it inevitably rears its ugly head, but I digress.
Let’s start with a basic lesson on the futures markets, which I guarantee you both of these guys already understand (and if they don’t, they’re too stupid to be president). Without this market there would be no price stability and everything would fluctuate wildly and constantly. Producers could not predict prices and therefore all financial forecasting would go out the window and the economy would be a total mess. I am not overstating this at all.
There are two players in futures, hedgers and speculators. The hedgers use futures to offset their hard costs, like Southwest Airlines hedging fuel, and the speculators take the bet. If they did not exist to do that, well, chaos would ensue. And every time they take a bet, they risk total loss, hence why they are “speculators”. Of course, it they are right, they make money, even lots of it. You know, the connection between risk and reward, if you risk it all you can make it all. Just plain common sense, no?
Speculators do not set prices. The buy and sell decisions of all parties involved do that. And there are just too damn many of them to manipulate. This is always the problem with any elaborate conspiracy theory. There are just too many people involved to make it even possible either to execute or maintain the requisite secrecy.
So, energy prices are zooming due to fears related to supply and demand, not some malicious plot to derail the world economy. If oil were to climb to $200 per barrel, something that I have written about and still believe is highly unlikely, then $135 oil is going to look like a bargain to the hedgers. Get it? Speculators are nothing more than insurance companies of a kind that protect against future volatility. They are not a bunch of blood suckers, contrary to idiot politicians.
Now all of this is pretty detailed, involved, and boring for the average Joe, and so our politicians should be relied upon to tell the truth. Oh wait. Now I am being a moron.
Posted by Herb Kay on Thursday, June 26, 2008
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