Friday, February 24, 2012

Seething at Soaring Gas Prices? Blame the Speculators!

As American drivers are barely coming to grips with some semblance of an improving economy, soaring gas prices threaten to wreck it all! In California gas prices have soared to over $5 a gallon , emptying people's wallets at the rate of $70-100 per fill up. In other parts the prices approach $4 a gallon and at the rate of increase may well hit California's rates within weeks. What the hell gives?

Though some immature drivers have vented their frustrations at actual gas station attendants, or owners, they are not the cause - earning maybe 10 cents on every gallon sold, if that. The real culprits are speculator parasites hiding behind flashing screens in air conditioned offices on Wall Street making "bets" on the upward futures costs of oil, and thereby driving the costs upwards for all of us. It has not one damned thing to do with the law of supply and demand.

By some independent estimates, up to 30% of the current per barrel price of oil is due exclusively to speculation by institutional traders in the oil commodities market. These institutional outfits often include pension funds, who put their members future welfare and livelihoods at grave risk especially if the oil prices should crash. If Oil is currently at $107 a barrel it would mean that minus speculative influence it be about $77 a barrel and the current $3.60 for a gallon of gas would likely recede to $3.10 or even $3.00 or lower if the speculation was controlled.

The key is "controlled"! To his credit, Brad Chilton, head of the Commodities Futures Trading Commission (CFTC) has brought this to Americans' attention - last night, on the ABC Newscast, and vows to crack down on the casino operator traders and their slimey ilk. And what was Wall Street's response? To threaten to sue the CFTC!!! Obviously, the bastards have a good thing going, just like the speculators who drove our economy into the ditch using credit derivatives in 2008, so they don't want any authority mucking it up.

Of course, the speculators and their apologists and protectors in the financial media don't wish to hear this, nor do they appreciate the daylight cast upon their activities. Indeed, in the last such go-round, in 2009, I counted no less than eight counter-attacks (in The Economist, The Wall Street Journal and The Financial Times) against any remote suggestions of making the speculators "scape goats". Much umbrage was taken and editorial ink and bile spilled, but I saw little to convince me the speculators were the "angels" depicted: the "guardians" charged with controlling things in the futures markets for the public good.

To which I say, 'Bah', 'Codswallop!' and 'Humbug!" All they are protecting is their own bank accounts, just like the notorious Enron energy traders did back in 2000, when they'd tank the electric supply in California to raise it on a whim, in order to get back at "granny"! Again, nothing to do with actual supply.

The problem with speculative enclaves such as commodities, futures markets is they're mostly hidden away from public view, so they are able to conduct their shenanigans beyond the scrutiny of the public mind. G.P. Brockway (The End of Economic Man, Harpers, 1991) noted that before about fifty years ago one had roughly equal 'productive' and 'speculative' economies based on Main St. and Wall Street. Real productivity kept growing because real investment was made in hands-on materials, plant, research and labor. Most everyone benefited, including workers - via real (defined benefits) pensions (not '401ks') as well as higher wages, and companies that produced REAL goods.

Sometime after Reagan was canonized, in the 1980s, the speculative economy (which up until then had been kept in the background) began to take control. Much of this became possible through de-regulation, especially of the banking system. The effect was to shift enormous volumes of capital from Main Street to Wall Street.

The odious advance of this speculative cancer, the degree to which it has our nation by the balls, was recently addressed in the UTNE Reader article(p. 40, March-April), 'Gilding the Big Apple', by Christopher Ketcham. Ketcham cites a December, 2010 Fiscal Policy Institute report noting that "New York City is now at the forefront of maldistribution of wealth in the hands of the few". No wonder, since NYC is the cornerstone of speculation. Most of its top 1 percent, as the piece notes, have average annual incomes of $3.7 million. During the last year for which stats are available (2007) they took for themselves 44% of all income. This compares to 23.5% of income for the one percent nationally.

Here's another astounding fact made known in the piece: Despite 9 million New Yorkers, the top income people comprised only 34,000 households and 90,000 people. Meanwhile, NYC's middle income earners experienced a 19% decrease in earnings, and almost 11 percent of the city's populaton or 900,000 live in "deep poverty". Meanwhile, "50 percent of the city's populace have incomes below $50,000."

According to the FPI:

"The wealth of the one percenters (in NYC) derives almost entirely from the operations known as 'financial services' whose preoccupation is something called 'financial innovation'"

In other words, they are useless parasites! They do not, even like John Galt- the erstwhile hero of the Libertarians' 'Atlas Shrugged', create or build anything. Their "product" is speculative devices: dervatives, credit default swaps, ETFs and other bilge, none of which constructively contributes but which serves only to obscure investment quality and hoodwink the innocent into gambling their money away on "structured investment vehicles" (sic) or other rancid crap, they know nothing about. At the heart of much this, the "quants" - the Ph.D. refugees from math and physics who opted to go for the cash and trade in their talents to the Dark side.

Another disgusting fact presented: The 20 largest financial institutes in the U.S., almost all based in NYC, now control upward of 70 percent of the country's financial assets- roughly double of what they controlled in the 1990s.

And the saddest fact of all? It's all based on quicksand! Because unless a major portion of those assets (at least $2.7 TRILLION, according to the American Society of Civil Engineers) is plowed into infrastructure repair and rebuilding our water mains, sewer lines, bridges etc.. it is all useless. We will end up being the "richest" (on paper) 3rd world nation in history. Little different from the homeowner who wins the Publishers' Sweepstakes contest, but opts to do nothing while his basement rots away from black mold.

It was Kevin Phillips, in his superb book Arrogant Capital, who first noted that whenever an empire or nation is in decline, rampant speculation preceded it. Monetary gaming and the creation of dubious speculative devices always dominated over all else and drove the economy. Such was the case with the 16th century Dutch, as with the British at the end of the 19th century. It is as true today in the U.S.A.

Thus, for every percentage point that "finance" claims a higher portion of the country's financial assets, it is another nail in our national coffin. If Mr. Chilton, or Mr. Obama, can do anything to rein in the speculators, it redounds to the national benefit!

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