More Regulation On It's Way

ALL the data has consistently shown that speculators in commodity markets bring stability of prices, NOT higher prices. Speculators serve a critical role in commodity markets by providing liquidity and risk capital necessary for development of resources that brings fresh supplies into the market. Without that capital, SHORTAGES and HIGHER PRICES are the inevitable result!

A CFTC study late last year proved this. They found:
1) Speculators represented a SMALLER percentage of Open Interest in 2008 than just two years earlier, when commodity prices were much lower.If speculators were driving prices, the opposite would have been the case.
2) Speculators represented only about 16-18% of all open interest in any commodity.
3) Speculators were evenly split between longs and shorts
4) Speculators, by nature, must off-set their position to exit the market without taking delivery. This is by design and guarantees that every long spec will be off-set by a short spec.
5) Commodities that are NOT traded in futures exchanges show more price swings and LARGER UPWARD price movements than futures-traded commodities. The smaller the liquidity pool, the more erratic and higher prices go.

I know that there is a tendency to look for villains and scapegoats for commodity prices that we don't like, but this just provides the politicians with cover that ultimately harms the American people by appearing to take action, when they are really doing more harm than good. Did it ever occur to you that the politicians look for an easy target because it allows THEM to evade taking responsibility for their own destructive policies?

Just look at the price chart for Jan-Jun for crude oil. Now look at the same chart for the Dollar. They are an almost perfect mirror image of each other. Overspending and overprinting devalue the Dollar and drive the price of all commodities much higher. If you want to see cheap prices, then pressure Congress to reign in spending.

Trying to control prices by onerous regulation of speculative capital will do the following:
1) Drive prices HIGHER, not lower. Over the longer term, capital will flee the US to other futures exchanges in Asia, Europe, and the Mid-East. This will collapse the Dollar and drive commodity prices higher. Capital flight always devalues the local currency. Always!
2) Starve the markets of risk capital that brings fresh supplies into the market. This will REDUCE supply, especially of FOOD commodities, thus pushing prices higher. Farmers are especially aware of this, and are glad to have the risk capital available to them to sell their product.
3) Create more erratic price movements in commodities. Prices swings both higher and lower will be much larger.The whole purpose for creating futures was to stop the huge price swings that made it impossible for farmers and end users of products to get fair and stable prices.
4) INCREASE the influence of large funds, not decrease it. If you have to swim with a blue whale, you'd rather swim in the ocean than in the local swimming pool. The Hunt Bros were able to corner the world silver market BECAUSE of its small size. Once the price of silver rose high enough, so many new participants entered the market that prices collapsed. A large liquidity pool prevents large players from throwing their weight around.

By trying to control prices by shrinking the futures markets, HIGHER prices and SHORTAGES will be the certain result. Hugo Chavez didn't want to believe it either, but his attempts to control prices have brought higher prices and shortages of all types. The same thing will happen in the U.S. I hope you all have lots of food stored at home, but you may need it if onerous new regulations are implemented.

If you want to see lower gas/food prices, encourage Congress to keep the Dollar stable by STOPPING all the spending! That will do more than all the regulation they can dream up to keep prices stable!