Oil Speculators Still Playing Us for Fools!

Oil speculators ....getting ready to make their bids for higher cost oil! Can these clowns be controlled?

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. Gaming and the creation of dubious speculative devices dominate over all else and drive the economy, even as manufacturing real goods plummets. 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. The problem is that speculative enclaves are 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) has noted that before about fifty years ago one had roughly equal 'productive' and 'speculative' economies based on Main St. and Wall Street, respectively. Real productivity kept growing because real investment was made in hands-on materials, plant, research and labor.

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.

Now, as oil prices spike to absurd highs, pack rats of inept economic morons on the Right continue to hold Obama responsible while if they had any sense, their attention ought to turn to the commodity "traders" .....errr....speculators. (See graphic attached - of a couple of oil speculators in their bunny ears)

By some independent estimates, up to 30% of the current per barrel price of oil is due exclusively to speculation by individual as well as institutional traders in the oil commodities market. (Alas, these institutional outfits include pension funds, who put their members future welfare and livelihoods at grave risk especially if the oil prices should crash) .

Here is the real absolute fact: THERE IS NO SUPPLY PROBLEM!!!

Even if Obama opened up the strategic reserves, and then drilled and fracked in every efing state of the Union it would not drive down oil prices, gas prices because they are detached now from supply and demand! They are rather being bid upwards by the speculators who see only higher gas prices and hence do ficititious "buys" to send the prices upward while not actually buying any physical gallons. One way they do this is to foresee Iranian problems at the oil spigot then saying "Hey! This means higher oil prices!" and then bidding them up.

This is much like Enron's shell game (in “energy trading” in 2000), wherein no real kilowatts were generated and moved. Rather kilowatts were shifted on paper and increased costs put on as the transactions crossed particular state lines (say from AZ to CA). In the same way, future costs of future oil are bid upon on PAPER by speculators, and these amounted to something similar to auction bids. "One twenty -five! Do I hear One-twenty-five! Yessir, you over there! Got it! One thirty! Do I hear one thirty!..."

The difference is that in the hidden commodity-energy auction, unlike an actual auction for a real barrel of oil at say, Sotheby's, every manjack pays the final bid! So imagine this room, where dozens of commodities speculators ("traders") are bidding on a future amount of oil. The bidding begins maybe at today's market price, say $100. Then some guy yells out: "I bid $104"! And another bozo in the back yells: "I bid $114!" And it finally ends when some clown in an Armani custom-made pinstripe suit bids "$120".

Does he purchase it? Well, only in a hyperbolic way. You see, rather than paying the full price as a real bidder must, say at Sotheby's, the oil trader has margin requirements in oil futures that are often as low as 5%. This means he need only put up 5% of the total cost of the amount bid! Would that all auction bidders everywhere had such a grand deal!

By one estimate the price of gasoline has nearly 50 cents arising from speculators in the commodities markets due to their fiendish moves, and that may be an under-stated. (The speculator burden could well be as much as $1 per gallon in states like California, Alaska).

This has led some observers to suggest that Obama at least threaten to release the strategic reserves (thereby inclreasing suddenly the supply) just to "spank the speculators". However, I am not sure this could work and calling bluff is never a full solution.

What we need is for the Commodities Futures Trading Commission to get tough and lower the boom on all oil speculation. A first step is taxing each transaction, or putting a surcharge of $1 on each such move. Make the bastards pay for what they're doing to the rest of us....through the eyes, nose and even those fucking bunny ears!

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!