Economics Questions

Re: Bill O'Reilly, Dennis Kucinich, and "S.O.B." Commodity Speculators

Zlatko — Thu, 12 Jun 2008 07:17:54 GMT

Speculation generally tends to move prices to their correct levels faster.

More spesifically related to oil, here's an excellent description of how speculation might or might not be driving oil prices higher: http://www.interfluidity.com/posts/1211940323.shtml

The author is very knowledgeable of financial markets and also of economic analysis and has an austrian bent to his analysis. I would recommend this post and the blog to anyone (I am not the writer of the blog!).

I spesifically like this paragraph (emphasis mine)

"But what if the price-setting speculators are not momentum-driven index funds, but "traditional speculators", correctly predicting that prices are below long-term fundamentals? Then limiting commodity speculation would prolong the mispricing, and cause us to waste resources that are kept artificially cheap. Alternatively, what if [...] commodity prices are being driven by monetary fears? Then banning pension funds from commodities would amount to barring the exits, forcing workers to watch helplessly as their retirements are devalued away. If "fundamentals" are driving prices, or a flight by official actors from market to non-market means of resource allocation, limiting speculation would do no good, but would obscure the news by interfering with price transparency."

Re: Bill O'Reilly, Dennis Kucinich, and "S.O.B." Commodity Speculators

JAlanKatz — Thu, 12 Jun 2008 05:56:12 GMT

richie2044:
What is the Austrian view of speculators?

Speculators buy low and sell high. When the price is low, they drive it up, and release their stores when prices are high, thus bringing them down. So speculation tends to make prices more level, particularly when the price starts out artificially low due to government intervention, thus serving an important purpose.

Re: Bill O'Reilly, Dennis Kucinich, and "S.O.B." Commodity Speculators

fsk — Thu, 12 Jun 2008 03:16:13 GMT

Commodity speculation is profitable due to central bank manipulation of interest rates. The Federal Reserve fixes interest rates at 2% while inflation is really 15%-30%. Therefore, it is profitable to borrow at the Fed Funds Rate and buy commodities.

The "greedy speculators" are merely performing arbitrage of the Federal Reserve's policy of negative real interest rates. The blame properly belongs with the Federal Reserve and not the speculators. The speculators are acting in their rational self-interest in the "free market".

Negative real interest rates are needed to feed the derivates and futures markets. Without Federal Reserve subsidized interest rates, commodity speculation and derivatives are not profitable. Under a gold standard, real interest rates can't fall below 0%.

I don't know if this is the "official" Austrian viewpoint, but it's my conclusion.

Bill O'Reilly, Dennis Kucinich, and "S.O.B." Commodity Speculators

richie2044 — Thu, 12 Jun 2008 01:44:35 GMT

Bill O'Reilly's guest was Dennis Kucinich, with the main topic being Kucinich's attempt to impeach W. The conversation turned to energy prices, and Kucinich stated that he wanted more oversight regarding commodity speculators. O'Reilly's response was "Go get 'em!" He said that he wanted Kucinich to "bring those S.O.B.s down!". How can a person, Harvard educated, be so ignorant? Oil is traded on the world market, not just in the U.S. How does O'Reilly expect to punish traders internationally? O'Reilly also stated the U.S. needed to go to "flex-fuel". What is the Austrian view of speculators?