Per today’s Los Angeles Times commodity traders may be artificially driving up the price of the everything from the gas in your car to the breakfast on your table. Consumers are piping mad and politicians are listening.
Excerpts:
The record-shattering run-up in energy and food prices has put investors who buy and sell such things on the hot seat — so hot that some in Congress on Tuesday threatened action.
“The American people are about to take out pitchforks” because of the cost of groceries and gasoline, Sen. Claire McCaskill (D-Mo.) said during a Senate hearing on whether commodities are being pushed higher by investors’ high-stakes bets that prices will keep going up. Given the uproar from consumers, McCaskill warned an official from the U.S. Commodity Futures Trading Commission, “if you don’t do something, Congress will.”
But the commodity traders say they are just innocent pawns in an economic machine that’s on autopilot.
Jeffrey Harris, chief economist at the Commodity Futures Trading Commission, told lawmakers Tuesday that the high prices reflected increased demand from emerging markets and decreased supply because of bad weather or geopolitical events.
Harris and others also pointed to broader economic factors such as the sinking value of the dollar, which has made commodities traded in the United States a relative bargain for foreign investors.
Hogwash says, of all people, a lawyer:
“You’ve got futures exchanges that are rife with the ability to manipulate and excessively speculate,” said Michael Greenberger, a University of Maryland law professor who spent two years in charge of the Commodity Futures Trading Commission’s trading and markets division. “Congress firmly believes that they’ve got to bring this speculation under control. And it is my thesis that if these markets were policed, the prices would drop very rapidly.”
You can read the rest here (provided you have LA Times registration).
Oh, the tag is under Korean Economy because high commodity prices in the U.S. affects inflation in Korea as well.
16 Comments
“Jeffrey Harris, chief economist at the Commodity Futures Trading Commission, told lawmakers Tuesday that the high prices reflected increased demand from emerging markets and decreased supply because of bad weather or geopolitical events.”
Well…Oil production by OPEC countries has been stable in the last few years and other major producers, such as Canada, have increased their production. It’s also expected that he demand for oil will increase at a lower rate this year than initially expected.
Buncha fools! Wait until water prices go up!
let the market operate free.
what is this new source of “demand”, anyway?
It’s freaking China.
I don’t know why everyone is so afraid to say it.
ex)
The Chinese are eating more pizza.
Guess what?
Now there’s a shortage on cheese.
Guess what?
Your pizza is now more expensive.
So, a stupid law maker, decides to interfere, and try to keep prices down.
It will only be artificial. Can you say, Mugabe?
Not that I know any better.
The Chinese aren’t riding bicycles to work in Beijing anymore, either.
yeah, yeah, yeah. Made in China is how you get the Wal Mart price.
But, inevitably, high food and fuel costs were coming and are here to stay.
That’s how I see it.
Is it any wonder, all the lawmakers in the news have (D-) ?
so, what good would a price cap do,
when supplies are short, relative to demand?
I recall something bad happening in that scenario.
Just something I read in a textbook, many years ago.
Not that I know any better.
There are groups complaining that some commodity prices are artifically low, and others compalaining that they are artificially high.
Those SUVs you drive couldn’t possibly be contributing to global demand for gas!
i think in the extreme scenario, it’s supposed to be like
gasoline is $2.00/gallon,
but the station’s dry most of the time.
I think it also plays out, like, you have to form a huge line to buy $2.00/gallon gasoline.
While, you could pay $4.05/gallon and same line or no line as today.
Like, trying to buy that $99 Wii that doesn’t exist on the shelves.
I just perused her homepage. I wanted to see if it was an election year. She seems to be a level headed lady with some good intentions, but I guess her ideas of free market are more socialist.
Haven’t we learned, yet the problem with price controls? Head meet brick wall, repeat.
Anyone with any economic or business sense knows that this is being caused by “Chindia” and to a lesser extent the other developing coutnries. Everyday in China, people come in from the countries side, dirty and poor, and them find some sort of job in the booming economy and start buying things, while those with money are able to buy cars, aspiring to get huge SUVs to express thier status like those in the US. While this has still only affected a fraction of the Chinese, given their huge numbers, a fraction of them is all it takes to spike demand.
I have to second what WJK says, that I hear frightfully few people admiting to this in the US.
I suspect that it is some sort of subconcious arogance that leads many Americans to think that the worlds oil prices are affected solely by the misguideed policies of whatever idiot president they have at any one time… there is a serious lack of perspective there…
#2,
Don’t you know that water from the municipal water supply and sewer systems is a scam at any cost? Like my dad says, “Leave it to the government to do the impossible: make people pay for something twice”. Ever heard of an artesian wells?
It’s not just “freaking China”. Demand an a number of fast-developing emerging economies is driving up commodity prices but they certainly aren’t the only culprits. It’s not a question of people being afraid to blame China. It’s that sensible people know better.
For nearly a century, the developed world has enjoyed cheap food for reasons far too numerous to list here. That time is coming to an end and no amount of election-year interfering by some silly congresswoman is going to change that.
And last I heard, there is no shortage of Stilton or red Leicester because the Chinese are eating more pizza.
I checked our local petrol prices in Sydney. And guess what. It shocked the hell out of me.
Whereas it was $1.45 per litre two weeks ago, today it was priced at $1.69 per litre… an increase of more than twenty cents!
* One litre = 0.28 gallons
Out of curiosity, who determines the oil prices? The companies? OPEC? Both? And what’s it like in Korea with the weakened won?
Greenspan flooded the world with cheap money. Bush went to war, and flooded the world with T-bills to pay for it. Japan maintained <1% interest rates, and flooded the world with more money (the ‘carry trade’). All this money has been looking for a home. It caused stock market bubbles, consumption bubbles, housing bubbles, gold and oil bubbles…
Bubbles popped, and still there is just too much money in the world. It’s OK when it’s just moving around between financial companies, who sell intruments to each other and then write them down as bubbles pop. But even this process hasn’t mopped up all the money that is out there, looking for a safe place to rest.
Stocks aren’t safe this quarter, neither are bonds. Real estate isn’t safe. Gold and oil are still in bubble, and waiting to pop. Where to go, where to go….? Eureka! FOOD! That’s it! Let’s buy up all the FOOD! It’s been cheap for a long time, it has room to inflate! Rock on!
It’ll pop, too, eventually. But it’s a sad burden that the world’s financial whiz kids have to bear these days, knowing that the money they are managing is now hurting the people least able to withstand price shocks - people whose incomes go primarily into keeping themselves fed. They know what they’re doing, they know the effect that it’s having. But their god can be a harsh god sometimes - and no other god is more powerful than open markets.
And so, they tell themselves, it is for the good of everyone that all this money gets mopped up, before it can do any more damage. The banks have taken writedowns. Homeowners have defaulted. Stock investors and pension plans have suffered. Everyone must do their share. Now it’s time for the common man to do his share, and tighten his belt, literally. Nothing personal. The markets, by definition, can never be wrong.
Linkd,
That’s pretty much spot on. Yes Chindia is consuming more, but oil demand is only increasing an average of 1-4% a year globally, which doesn’t justify the rise from $50 a barrel to $130 in just three years.
Food? Yes, more Chindians are eating those high protein, western style diets, but the bulk of the rises in food prices are due to temporary situations, such as geopolitics and bad weather in 2007. Also in increasing use of corn for ethanol production. It’s silly to use corn to make ethanol when cellulose based products can yield much more.
Too much capital in commodity futures markets that’s driving up prices. Generally free markets work when people don’t cheat the system. But… people being people cheat when they can get away with it. That’s why we have regulation in the stock market, real estate, etc. Less so in commodity markets. If the bubble in the commodity market is huge and if it crashes (which I don’t think it will do, but there is that risk) then expect to see more regulation in futures trading. Regardless, I see greed playing too big a role at the NYMEX and the CME, with the rest of the world (third world nations especially) paying the consequences. We have the dollars, yen and Euros to ensure stable supplies of food (albeit a little more expensive). The average African, Latin American and central Asian countries don’t.
Speculation, monetary/credit issues and a host of other things exacerbate the problem, but it’s really good old fashioned supply and demand that’s causing the rise in commodities prices. It starts with the rise of the emerging world, but peak oil could very well be a reality, at least some form of it. Oil companies and OPEC officials or those in their pay are the last to pooh-pooh peak oil theory.
Bubbles, so often disparaged, may have a positive role to play. A bubble of investment in alternative energies — possibly on the way I think — may actually save us… The sharper rise in oil prices brought on by the momentum and investment flows (the market’s “reflexivity” as Soros would say) could actually help us shift away from oil faster. The danger is that the bubble pops, oil falls to $70 and consolidates there, and everybody forgets the real, long-term problem: there’s not enough oil. This dovetails with global warming…
Korea is a country which needs to adapt aggressively.
Korea is over three times less oil efficient than Japan, for example. Therefore it’s not unreasonable to assume higher oil prices will hit Korea three times as hard as they hit Japan.
LMB would be well advised to shift the infrastructure to natural gas, develop Koreas natural gas aggressively, and seek alternate transport technologies like biofuels from algae and plankton which are hundreds of times more energy efficient as feed stocks like corn and even sugar.
Korea can to use its industrial policy to push the Chaebols to make natural gas cars, hybrids, electric cars, you name it. I think Korea needs a strong industrial policy, consistent with its cultural nature, which can save it from the next phase of this commodity super-cycle, and help Korea as emerge as a winner.
Excuse the typos — going a little too bali.