The Real Reason for High Gas Prices: Position Limits now for the N.Y. Merc!: CFTC appointment in Jun, page


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Topic started on 12-3-2011 @ 12:43 AM by LilDudeissocool
The Ed Show

It’s quite possibly the single most important nomination President Obama will make—with nothing less at stake than both the U.S. and global economies, not to mention the potential starvation of millions of people inthe developing world—and last night on The Ed Show, Ed Schultz broke the news that the White House vetting has begun. What is not clear is whether the White House understands just how important this appointment is.

The position is commission member of the Commodity Futures Trading Commission. It sounds boring, until you understand that how the CFTC does its job has a direct impact on how much money you pay at the gas station and the grocery store—and how much of that money goes to Wall Street. The CFTC’s function is to regulate the trading that takes place on everything from oil to wheat.

When things run well, as they did after FDR got his hands on them, the price of your heating oil and your gasoline and your bread and your cereal and your rice cakes and your cotton shirts and your sugar is determined by two factors everyone understands: Supply and demand. The reason bakers and heating-oil companies and airlines don’t just pay whatever price is dictated by current supply and demand is that sometimes unforeseen events can mess with supply (or demand). To hedge their bets against such price fluctuations, those companies I just mentioned (which are known as end users) started to buy contracts with their suppliers to lock in future prices. End users agreed to pay a little more six months or so down the road, in return for knowing they would pay no more than a little more.

For this system to work, end users actually need speculators. They keep the system liquid, and ensure a steady supply of futures traders willing to bet counter to however the end users are betting. You can’t have a casino where everyone’s betting on the same thing, after all. FDR recognized that speculators, left unchecked, could overwhelm the commodity exchanges with bets designed not to hedge against supply and demand, but designed to manipulate prices. He signed into law position limits, legal caps on the volume of Wall Street speculation that kept speculators in check and ensured that most of the futures trading was done by genuine end users.

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