Common Sense Award #2?

Hi Everyone:

I can't believe that I have found another story that may eventually fit into my CSA category. I hope this common sense solution works, but I am not sure yet and only time will tell.

On March 8, 2009, I wrote about why I thought the prices of oil/gasoline went sky high in such a short period of time which had never occurred in the history of oil prices previously. Some of my friends weren't sure if I was correct since the country was fed information over and over, (what I believed was a bunch of BS) on the theory of supply and demand economics. I wrote that the cause was due to speculative trading, not supply and demand.

Well, well, well, go figure, this past July 27, The Wall Street Journal had an article that stated that the volatile oil prices were due to exactly what I wrote about on March 8th. The WSJ blamed the price increases on the energy futures market; specifically the investment houses and their speculators. I will not gloat about what I thought had happened other then to say, I told you so.

It now seems that federal regulators may be moving toward imposing limits on speculative energy trading. Gary Gensler, chairman of the Commodity Futures Traders Commission, said his agency must "seriously consider" imposing stringent limits on speculative trading of energy futures contracts, a move that would mark a major shift for the government. At a hearing organized by the agency, Gensler said the futures exchanges have generally not used their authority to limit the size of positions taken by speculative players - something that on 7/28/09 the Chicago Mercantile Exchange expressed willingness to do. Gensler also said last week that the agency may propose new rules setting limits in the fall. He went on to say that the commission opened the debate to determine how limits could reduce excessive speculation, "not how we can eliminate speculation".

On the other hand, on 7/29/09, the financial firms that play a dominant role in the energy futures market brought their case to federal regulators against any new limits on speculative trading that would apply to them in their role as market middlemen. Of course I would not have expected those financial firms to have done anything else. Their greed is beyond belief and they just want their gravy train to continue indefinitely. Those firms made a ton of money and they don't like or want anybody to step on their toes. But what was the direct end result of those speculators on the oil futures market? Unbelievably high oil prices which led to unbelievably high gasoline prices, which led to higher prices on anything and everything that was either made with oil or delivered using oil, which included everything in this country. The direct results of their actions, in my opinion, also added to the perfect storm which began the recession here in this country and quickly spread to become a global recession that all people of this planet now find themselves in.

As I said before, I am not sure if new limits are imposed that it will work, since it has never been tried before. What I do know is that if no limits are imposed and the speculators are left unchecked, what is to stop the futures market from doing it again and maybe gas prices go up to $5.00/gallon or even higher? Supply side economics has a life of its own and it doesn't need any help from from greedy financial firms and the speculators. So I do believe that imposing some kind of limits, is a good common sense approach. I just hope that it is done correctly and that it works to try to help stem the tide of volatile oil prices as far as speculation goes. Again, only time will tell.

Now I know there will be a whole slew of people and of course financial firms that will be dead set against any kind of government intervention because they think it is none of the government's business being in the commodities market and the market should be left to its own accord to let it work itself out without any outside meddling. All I can say about that is the past policy of no intervention obviously didn't work or we wouldn't be in this mess in the first place.

What do you all think? Let me know.

Common sense rules and greed drools!

Til next week.