|Deep Speculation -- from Harper's Weekly 2/11/1865|
Advocates of free markets like to point out that government regulation strangles and upsets the equilibrium that laissez-faire capitalism provides and requires in order to maintain pricing that reflects the true value of goods and services. Libertarians are staunch believers of totally unfettered capitalism, although the majority of conservatives are its primary cheerleaders also. Or so it seems.
Certainly all the saber-rattling from the United States, and Israel (the tail-that-wags-the-dog), against Iran is having an unnerving affect on the oil commodity markets around the world. Add to this the declining value of the U.S. Dollar, which dominates and is linked to the value of each barrel of crude, and not to mention manipulation by unscrupulous producers that invokes shortages and drives prices upward. Of course, as would be expected, Republicans are jumping on the bandwagon and are more than happy to blame this on the Obama Administration. But there are definitely other factors involved -- factors that have had a long-term influence on steadily rising gasoline prices over the last few years. These are factors that are unrelated to consumer demand, since demand is currently at its lowest mark in the United States since 1997.
Many people are only vaguely aware that oil prices are set by commodities traders -- speculators -- who buy and sell futures contracts on the world's commodities exchanges. These are agreements to buy or sell oil at a specific date in the future at a specific price. Buyers will use these to avoid the risks associated with the price fluctuations of oil, while sellers will attempt to lock in a price for their products. As with all financial markets, speculators use such contracts to gamble on price movements. Commodities traders can create a self-fulfilling prophecy by bidding up oil futures prices (or bidding down, selling short, and still getting rewarded handsomely). This practice adds up to 30% to the cost of a barrel of oil without adding any value to the barrel. Once this starts, it can create an asset bubble. (Sound familiar?) Unfortunately, the one who pays for this bubble -- the artificially-created pricing -- is the consumer. That's you...and that's me!
As Uyger points out, last year each family in America paid an extra $600 in fuel costs due to oil speculation -- an extra $600 that isn't related to supply and demand market forces or because of free-market competition. It was, pure and simple, just another example of how monopolistic capitalism manipulates market pricing, creating bubbles of artificially high pricing for the benefit of a few and to the detriment of the many. It is, by no other definition, market manipulation -- despite the Dodd-Frank Bill passed by the Democratic Congress that was supposedly designed to limit such abuses.
Here's an older video from last year, again by Cenk Uygur, that explains this subject even more thoroughly. It's happening again.