From Your Gas Tank to World Hunger: The Dangers of Speculative Futures

Ankaboot,

Actually, you raise a fair point. Of course, the Euro has its own problems with debt in Greece, but yes, worries about the dollar's stability are part of the mix.

Thank you. When the price of a loaf of bread goes to fifty million "dollars," stop by for a peanut butter and jelly sandwich made with real wheat.

Could have tied fuel and hunger directly by the connection between the diversion of the U.S. corn crop into ethanol production and the cost of food to poor around the world. U.S. subsidies for ethanol production for use in motor fuels are a moral evil, (and don't do us much good, either ... viz, the Senate vote this past week.)

Monetary system issues are more destructive and corrosive with respect to rich/richer-poor/poorer wealth disparity than simply those of the "speculative futures market". Refer to the first 2011 issue of Fellowship Magazine on "Rethinking Money" at forusa.org multimedia. Elsewhere ...."Monetary Challenges -- Dysfunctions of bank-created money favor privatization of resources and wealth versus global common good. The ways in which fiat money is created by the 21st century banking systems cause a debt imperative which drives a growth imperative, and this drives destructive competition for a never-sufficient supply of money to service the collective debt. Debt-based money creation becomes entwined with systemic violence, whereas ancient faith-based wisdom implores against theft and usury, interest charged for enriching oneself at the expense of others - especially the poor. Discernment discipleship seeking the will of God must evaluate supporting freedoms to create debt-free money and movement toward practical Sabbath economics."

What drives up the price of oil is instability in the middle east, where we have to see if the Arab Spring is a genuine democratic movement or another radical Muslim power grab, and in Venezuela, where strongman Hugo Chavez has taken severely ill.

And replacing the world's "reserve currency" ~ the dollar ~ with another currency that the Fed can't print willy-nilly every time Congress raises the debt ceiling, and pricing crude oil in Yen, Euros, Marks, and other currencies ~ as China, Japan, France, Germany, Venezuela, and the oil-producing countries are moving to do ~ has nothing to do with it.

Right. Gotcha.

[ Buyers and sellers in the futures markets are looking to guarantee oil
supplies and are pricing oil higher because they expect it to become
dearer.]

L_V
Only partially true. "Speculators" can serve as "canaries" but also can snowball to drive prices up (or down). Speculating and hedging are different. Speculators are betting on a market move in order to make a profit on that move, and have no real interest in "guaranteed" supplies.

Ankaboot,

Actually, you raise a fair point. Of course, the Euro has its own problems with debt in Greece, but yes, worries about the dollar's stability are part of the mix.

LV

If we were told that the supply of any good was going to run out soon, we'd start to consume less of it. But we don't have pure knowledge of a particular resource running out, nor do we know the amount of time before it actually does run out. In an economy, prices signal that we should consume less of something, in part because the supply has been or will be reduced.

Prices are not just indicators of "markup" or "profit." They actually serve an invaluable function in an economy, namely the allocation of scarce resources. Futures markets, while corruptible to be sure, are an enormous asset to understanding the future of natural resources.

As a side note, when oil prices decrease, have the oil companies become less greedy?

Monetary system issues are more destructive and corrosive with respect to rich/richer-poor/poorer wealth disparity than simply those of the "speculative futures market". Refer to the first 2011 issue of Fellowship Magazine on "Rethinking Money" at forusa.org multimedia. Elsewhere ...."Monetary Challenges -- Dysfunctions of bank-created money favor privatization of resources and wealth versus global common good. The ways in which fiat money is created by the 21st century banking systems cause a debt imperative which drives a growth imperative, and this drives destructive competition for a never-sufficient supply of money to service the collective debt. Debt-based money creation becomes entwined with systemic violence, whereas ancient faith-based wisdom implores against theft and usury, interest charged for enriching oneself at the expense of others - especially the poor. Discernment discipleship seeking the will of God must evaluate supporting freedoms to create debt-free money and movement toward practical Sabbath economics."

IIRC the futures market exists to transfer risk from those who are risk-averse (the hedgers) to those who want the risk (the speculators). But I'm wondering what the margin requirements are - those are reasonable because someone can only lose to the point of going bankrupt, yet theoretically can gain unlimited profit. If they're too loose, then maybe they ought to be tightened.