If you’re examining the long line of economically illiterate politicians, by the time you get to Bernie Sanders, most of the line is behind you. It’s tough to find someone less connected with economic reality. Maxine Waters may be crazier, and Obama may be more directly dishonest. But no one is more clueless about how the world really works than the socialist from Vermont.
Most people know that about him – even most of the people who vote for him. So I didn’t get too worked up when I saw him on TV this afternoon demanding that ‘speculators’ be punished for “driving up gas prices”. He’s a dimwit, and most people know it. So it’s no sense getting overly upset.
Still, I thought I’d run through the role that speculators REALLY play in the markets one more time for those who are looking for the right words to correct their co-workers around the water cooler.
Speculators drive the price up and down – depending on what they think the future holds. If the Administration spends much of it's time canceling drilling permits, denying pipelines, suing oil companies, threatening more regulation for the oil industry, and lobbying for punitive taxes on them while throwing billions in subsidies at their competition, then the forward prospects will point to lower oil production and higher oil prices. The markets will react objectively, and speculators are a sizable portion of the market.
But if the administration were to enact laws preventing nuisance enviro-lawsuits, diminish the arbitrary and unchecked nature of the EPA, increase the availability of drilling rights, remove bureaucratic barriers to production and refining, and generally encourage the production of oil, then the forward prospects would point to increased supply - which as we all know will cause prices to fall. In that circumstance, speculators will drive oil prices down – just as they have recently with natural gas.
Speculators are the market, and the market is the bathroom scale. Bernie Sanders doesn’t like what his bathroom scale says so he wants to pass a law stating that he weighs about 30 pounds less than he really does. But that won't make him any skinnier. In other words, when politicians complain about speculators, what they’re really complaining about is that the results of their actions (not the intentions but the results) are being judged by an objective standard. They hate that, and liberal politicians REALLY hate it.
I know it’s boring to read it again. It’s boring to write it again. But please tell your liberal co-workers not to blame the speculators simply because they see a future that liberals don’t like. There are consequences to policy actions whether you like it or not. And the speculators are just calling it like they see it.
4 comments:
What would you say to people who point to distortions caused by speculators cornering the market? e.g. Hunt Brothers and silver.
I'm not saying I disagree with you. Just trying to be prepared before I confront my friends. Thanks
Well the most obvious response is that those efforts to 'corner the market' failed and the people who tried it were prosecuted. Many people have robbed banks but that doesn't mean that everyone who goes in the bank is trying to rob it. How silly of them to think that just because 1 guy tried to game the system that everyone is trying. (I'd actually use the word silly or ridiculous to make it clear to them that they aren't being rational.)
Having a free market doesn't eliminate avarice, all it does is make it tougher to implement. Had the market been more 'controlled' like say the market in Solar panels now, then it would have been easy for the Hunt brothers to cheat the system. They'd just get a multi-billion dollar loan from the DOE and go bankrupt afterward.
An example of the latter:
http://abcnews.go.com/Blotter/green-firms-fed-cash-give-execs-bonuses-fail/story?id=15851653
In regards to oil/gas prices:
There is no real shortage in the oil supply. There is however, a shortage of the oil reaching the market. Consumption has dropped so much in the USA, we have started exporting refined petroleum products. This is something we haven't done on a large scale in decades.
Like back in the last oil run-up (2008) there is a lot of oil sitting in tank farms, tankers, salt domes, and other storage facilities. That oil is locked up in a futures contract. When the contract expires, the oil doesn't get sent to market. It just gets locked up in a new contract.
If (I know.. these are big 'ifs'):
1. Obama & Co. are gone by January of 2013, and the new administration gets serious about energy (i.e. opens up the Eastern Seaboard to drilling.. yes, there is oil off the coast of NJ).
2. We get debt under control and stop printing dollars.
You will see the price of crude oil go down if not outright crash. All that oil will hit the market at once.
On a side note: The technology to turn our natural gas reserves into liquid fuels (GTL) has gotten good enough to be profitable at under $60 per bbl. Sasol announced plans to build a multi-billion $$ plant in Louisiana.
Post a Comment