The Delegator-in-Chief has announced the creation of yet another inert task force, this one forced upon the attorney general and tasked with examining the role of “traders and speculators” in skyrocketing gasoline prices. Technically this “working group,” as the administration is calling it, is a sub–task force of the extant Financial Fraud Enforcement Task Force, and will include representatives from the FTC, CFTC, FRB, SEC, USDA, etc. Presumably, when the group finishes its work at some indefinite point in the future, its findings will be carefully reviewed by a commission, which will then issue a handsomely bound report to a czar, who will finally inter it in a filing cabinet.
If the task force were merely impotent, it would be silly enough. But it is also redundant. The Federal Trade Commission already covers this turf, having been equipped by several federal laws with the power to monitor and investigate instances of market manipulation at the pump. Its major work product, a congressionally mandated 2006 report on post-Katrina price spikes, failed to find a significant pattern of gouging. Moreover, the Dodd-Frank Wall Street–reform bill passed last July vested the Commodities Futures Trading Commission with sweeping new authority to combat speculation, requiring the commission to write new regulations within six months of passage — a deadline that body has, by the bye, blown by three months and counting. So it seems safe to conclude that gas prices are not rising because the organizational charts of our regulatory bureaucracies are insufficiently complex.
Advertisement
Nor are the putative “speculators” — “investors” is the right word — themselves half the problem they are made out to be. In fact, they play a critical role in the marketplace. Among other things, they help companies with serious financial exposure to fluctuating oil prices (such as airlines and trucking companies) hedge against rising fuel costs. Unlike the U.S. government, FedEx can’t just print money when its expenses go up. The futures market provides businesses — and governments — with critical intelligence about the state of supply and demand for petroleum. An intelligent administration, or one at least less hostile toward profit-making businesses, would be looking for a more robust market, with more market participants, rather than hunting for villains.
What is causing high gasoline prices? Increased demand associated with the global economic recovery and (greater than average) Mideast instability certainly play their part, as does the continued control of a major portion of proven petroleum reserves by OPEC, a paradigmatic cartel whose very raison d’être is market manipulation. But the operant cause here, the main event to which this speculator business is a sideshow, is the man himself: President Obama, and his say-one-thing-and-do-another energy policies. He demagogues on oil speculators because he can’t — he won’t — do anything else.
Explain away an economic calamity as the byproduct not of bad policies, but of evildoers gaming the system, and find a group rich and unpopular enough to fit the bill; the rhetoric comes from page one of the Obama playbook and recapitulates the sorry formula we saw at work in his deficit speech. (Thus the president sneaks into a weekly YouTube address on the topic of fuel prices a perfect non sequitur about government subsidies to rich oil companies. There are many good reasons to end this bit of corporatism, but it is exactly wrongto suggest it will redound to the benefit of consumers at the pump in the near term.)
Behind the doublespeak, the reality is that President Obama’s favored policies do nothing to ease fuel prices, and more damning still, he doesn’t care. In 2008, when the national average was last peaking above $4 per gallon, candidate Obama made it clear that while he would have preferred a “gradual” increase, he saw ever-higher petroleum prices as a necessary antecedent and augur of our immaculate, green-energy future. And even now, as oil in the Gulf of Mexico sits and waits for new permits and the EPA scuttles the latest effort to tap the estimated 27 billion barrels of crude sitting below Alaska’s north Arctic coast, the president assures us that “what’s driving oil prices up right now is not the lack of supply. There’s enough supply.” We agree, there is enough supply to meet current demand: at $4 dollars a gallon, and beyond.
One similarly asks, what happened in 2008? Why did stable gas prices skyrocket that year, peak the month before the election and plummet to new lows for the new century--no, for the new millenium--on BHO's inauguration day? Whose hand was behind this? Where's the indignation, the investigation?
Epic chutzpah to argue for Cap and Trade and for energy to be more expensive, and then to deflect blame when energy prices go up. Gap prices aren’t increasing because of shadowy conspiracies speculators who can’t possibly remove that much supply from the world market. Obama need look no further than the own mirror, a war in Libya that removed nearly 2% of oil from the world’s supply, energy and food inflation and a result of his borrowing trillions of dollars in a two year period, unease over the “Arab Spring,” the Saudi’s reducing reduction, and a recovering world economy (Looks like Obama might be helping to solve THAT problem). Obama knows all of this, but his Obama’s demagoguery knows no bounds. The alternate possibility is that Obama really is an ignorant conspiracy nut who doesn’t grasp enough fundamentals of economics and really does believe a comic book version of reality in which villains are twirling their mustaches and cackling as they stockpile energy in their underground lairs.
Organization of the Petroleum Exporting Countries (OPEC) raise cost. Organization of Fuel Using Countries (OFUC) burn corn. OPEC populations go hungry and rebel. OFUC populations pay higher prices for fuel and food.
Appointing some commission to investigate the evil "speculators" is a tacit admission that the current regulatory bodies have failed in their duties to regulate the market. But I wouldn't expect big government, socialist types to understand that point.
This is one area where there ARE simple, easy answers. The United States is the world's energy superpower. We have more energy resources of all types (coal, oil, natural gas) than any other country on the planet. Yet we have so hamstrung our domestic oil production and refinery capacity that we are a helpless giant when price spikes like this come along.
It is axiomatic that small changes in the supply/demand balance cause large changes in price. Opening up enough US production to add, say, 5% to world supplies would probably cause a 50% drop in per barrel pricing. Although there would be some lead time, Obama could do this if he wanted to. Our problem, as the article states, is that he sees cheap, abundant fossil fuel energy as a bad thing. He hopes to spread the blame for high prices around so that it doesn't stick to him, but without actually doing anything to correct what he sees as no problem at all.
Thanks, Mark and Right. I was wondering why there was no mention of dollar-based commodities, such as oil, being driven by the number of dollars now chasing those commodities.
Gold hitting an all-time high price of $1,500 is not because "speculators" are speculating or supplies are too low or not enough "green" gold technologies are being subsidized with more of our tax dollars. It's because there are about three times as many dollars in circulation as there were just four years ago.
When you print money, commodity prices, as reflected by the number of them dollar bills it takes to buy a unit, go up. Inflation'll do that to ya, folks.
If one charts the decline of the dollar with the increase in oil prices, one will note that they are inversely correlated. In other words, that barrel of oil has the same value. The energy derivable from it hasn't changed. But the dollar which defines its price is worth less, or should I say worthless? Therefore, more dollars are required to purchase that same barrel of oil than when the dollar was worth more. Here is the graph:
“No mention here of the value of the dollar in free-fall increases the price of commodities traded exclusively in dollars.”
My understanding is that housing prices are factored into the Government’s inflation calculation. It’s self-evident to most Americans that prices are increasing across the board, which suggests that housing prices are turning the inflation calculation into a false metric. I wonder what the rate of inflation would be if we factored out housing prices? Then, we'd have a real metric of the price increases people are feeling and there's little doubt that the Government running the presses are a factor.
@JRapp: The CPI also excludes food and energy, it's almost pure manipulated baloney as a metric. It's only usefulness is to say "Hey, look we're keeping inflation down!"
MIT was running a billion-price-index tracking all possible prices on all possible goods input, but it was mysteriously canceled last week. Many are thinking they were pressured.
The chart I linked was Dollar vs Commodities Index, it should be quite indicative of the relationship.
At this pivotal moment in our national history we don't need task forces and commissions...we need leadership! Its absence is sadly evident in everything this administration does.
Or is it? Large body of evidence suggests boosting gas prices were long a plan headed up by Chu at the DOE. It may be that this task force is the smokescreen they need while they ensure the prices continue to rise.
This is pure, unrestrained capitalism at work. There isn't any regulation in the market for crude oil, just investors and oil companies cashing in. Why are conservatives complaining about policy? The last thing the Right wants is government intervening in markets.
Our economy requires not only petroleum and other fossil fuels, but it requires them at low prices to flourish. When energy prices go up dramatically, like gasoline and oil have recently, it will dramatically and negatively affect the economy. I am certain the recent rise in oil and gasoline prices will bring on a deepening of the current severe recession.
The last time gas and oil prices soared, I believed it would bring on recession. Economists, largely, if not utterly, ignored it. Later, they all said the recession was driven primarily by financial stuff. Our economy, including the financial markets, are completely at the mercy of oil, diesel and gasoline prices. It is our economic life blood. What is is. Nothing will change that fact. There is no viable alternative to transportation energy. If we pay more for it, it is less money spent on other things. That will fill the coffers of oil and gasoline companies and oil exporting nations, but it will harm producers of other products and providers of services. It is especially so, because the increase in the amount an average American spends on gasoline is so great, that it will significantly decrease his spending on other things. Yes, he may drive a little less, ride his motorcycle whenever possible, perhaps, when and where available, use mass transit a little more frequently, but these will not save much in America's spending on gasoline. Most people would take mass transit, if it were reasonably available. It isn't in most places. Most Americans would drive a lot less, if they could. Most driving is to and from work. They must get to work. High gasoline prices won't change that, so that's where his money will go - to gasoline to get to and from work. The pinheaded leadership either doesn't get this, or they intend to bring the economy down. It's as simple as that.
I don't know if it's bad policy, or something else. I only know the nation will not sustain $4 a gallon gasoline/diesel and remain competitive. The economy will tank again, only worse, since we're already down. If our government really can't do anything about the price of gasoline/diesel, then we're in serious trouble. If we're really at the mercy of Islamic producers, or the Third World's growing demand for oil, or just greedy companies, then the American economy will crash and everyone will be hurt by it. It's like a mad world hell bent on self destruction. If the government can do something about it, but won't, that's even more distressing. It means we have no democracy at all. It means our government is utterly unresponsive to the needs and unsympathetic to the suffering of Americans.
ARegularGuy, you're just wrong. Capitalism succeeds when it is LESS regulated. The oil industry is highly regulated and the Obama administration has stopped almost every effort to drill for oil. We have more than enough supply available off shore, in the Alaska Refuge and elsewhere. But this administration is rewarding Brazil and Mexico while stifling our own energy access. This is all by design to make America a third world non-power. He jokes about the high prices and the press laughs along with him. Were this Bush, we know what the headlines and stories would be saying.
@Aregularguy: "The last thing the Right wants is government intervening in markets."
You're right -- but we also don't want the government intervening in supply. It's those policies that are the problem. We want drilling permits issued for offshore and ANWR. We want new refinery permits granted. We want to do all we can to find and produce as much oil at home as possible. Get the government out of all of it and let the market truly work.
@Leishac: it isn't proven that more domestic drilling will have any impact to prices, especially since commodity prices are driven by speculation. OPEC could double output if they wanted to, but why should they since they are making loads of cash? Why would American companies do anything different? The drive for domestic drilling is based solely on huge oil companies earning even greater profits, not to lower prices for gasoline consumers.
@ARegularGuy, speculators are nothing more than market participants, unless they conspire to fix prices. Mere speculation is based on expectations for the future, which is to say nothing more than that markets determine prices - obviously based on expectations of how current policies, supply and demand are now and are expected to change in the future. If you guess wrong as an investor - or "speculator," you lose.
Obama deserves full blame for the "necessarily skyrocketing" non-problem (to him) of high oil prices. He's just creating bogeymen to cover his rather evil - and certainly intentional - policy tracks. And it should be no surprise by now - it is his administration's fundamental modus operandi.
