It's time to ban speculation

[barts]

High prices in food that has led to starvation, high prices in oil, and high prices in other needed commodities are rarely caused by the normal market forces of supply and demand, but rather as a result of speculation by companies like Goldman Sachs. These speculators also have a negative impact on matters like sovereign debt.

Speculation needs to be outright banned or tightly controlled so that the activity does not distort markets and harm people, as happened (and will likely happen again) with the rise of food prices at a time when there were large food supplies and diminished demand.

For example, from Speculation Blamed for Global Food Price Weirdness,

The link between commodity speculation and global food price weirdness just got stronger, and researchers warn that a new and potentially calamitous price bubble is imminent.

Since 2007, global food prices have surged twice, each time rising by more than 50 percent in less than a year, putting people in poor countries at risk and sparking social unrest around the world. Economists have argued over what drove the surges: Maybe it was bad weather, or changing dietary habits, or changing farming practices, or even a change in how global food markets now work.

In earlier work Bar-Yam’s group used mathematical models to test links between food prices and proposed explanations for market behavior. They identified two culprits: replacing food crops with biofuel crops seemed to be driving food prices slowly upward, while commodity speculation — investors betting on food prices — appeared to cause the spikes.

Speculation is bad, a form of economic thuggery. It takes commodities and products out of the "real" economy and puts them in a casino where the rich trade them and in doing so inflates prices irrationally. No benefit flows to people, the market, or nations, only harm as money is, in effect, stolen from the poor and transferred to the rich.

The rising price of gasoline in America is not because of reduced oil supplies or increased demand but largely because of speculation. Indeed, the US today is a net exporter of oil.

Speculation, as I say, needs to be either banned or confined to a small range of items that only the rich can afford; art and antiques come to mind. No speculation should be permitted in the resources and commodities that real people and the real, productive economy requires to operate properly.

[ric]

its time to ban speculation

sure i guess id be down for this at some level.

[ironeagle]

I am new to this subject. Before I make a decisions a few questions:

1. How does two rich people placing bets on food prices raise the actual price of the food?
2. Isn't gambling illegal in the first place or is this just a loophole type of gambling?
3.Why don't other countries produce their own food?
4. If people can't afford groceries why don't they hunt, fish, gather, or plan some or all of their own food?
5. Are people actually starving because food costs are so high, or is it because they do nothing to supply their own food?

[Senor Hoint]

1. How does two rich people placing bets on food prices raise the actual price of the food?

Economic bubble - Wikipedia, the free encyclopedia

[minorwork]

Speculation inflates prices? OK. What does increasing the money supply do? What does borrowing $1.7 trillion in two years do? $700 billion for the Stimulus and about $900 billion by not letting the Bush tax cuts expire December of 2010? Both necessitated dropping about $1.7 trillion into the money supply that was not backed by wealth but by debt. Those dollars introduced are NOT inflationary or have not as as much affect on prices as the speculators do? The good news is that it might give the old economy a boost just in time to let Obama point to himself for credit. Or if Israel and Egypt get into it like they did a few hours ago, it might not matter.

[Yarn]

Speculation ought be more tightly regulated, but it shouldn't be banned outright. Speculation and investment are inseparable, so since we need investment we need speculation.

Speculation inflates prices? OK. What does increasing the money supply do? What does borrowing $1.7 trillion in two years do? $700 billion for the Stimulus and about $900 billion by not letting the Bush tax cuts expire December of 2010? Both necessitated dropping about $1.7 trillion into the money supply that was not backed by wealth but by debt. Those dollars introduced are NOT inflationary or have not as as much affect on prices as the speculators do?

Over the more than 100 year period between 1789 and 1913, the dollar in net inflated only 8%. Between 1913 and 2006, it inflated around 2100%. 1913 is when the Federal Reserve was founded, and it has been printing money ever since.

The only reason why we consistently have inflation, rather than sometimes have inflation and sometimes have deflation, is because of government policy. Economic downturns in particular have severe deflationary effects, meaning that there is plenty of room at such times for the government to exercise inflationary governmental policies without causing high inflation. And indeed, inflation these past few years has been low and many economists argue that deflation, which is what would otherwise have occured, is to be avoided like the plague.

This doesn't mean we had to borrow so much money to avoid deflation though, since the Fed could have taken care of this by itself. If the elected government had borrowed less, the Fed could simply have printed more.

[Jack]

If people can't afford groceries why don't they hunt, fish, gather, or plan some or all of their own food?

Most Americans live in cities. This isn't a viable option for the majority of them.

[barts]

Speculation ought be more tightly regulated, but it shouldn't be banned outright. Speculation and investment are inseparable, so since we need investment we need speculation.

Investment does not need speculation. By that I mean trade in the shares of a company or other "things". Investment at its social and economic best takes on two forms: equity and debt. An investor can invest in an enterprise and share in the enterprise's profits or lend an enterprise funds and earn interest. Speculation happens when stocks or commodities are traded in anticipation of speculation artificially driving up the value of what is being traded. It's casino, and nothing more. When there is speculation in wheat futures, prices rise even though neither supply nor demand change. Speculation is an economic disease that only benefits the disease organism, the speculator, and it harms the host, regular people and the productive economy.

So, who cares if the things in trade are stamps or lawn ornaments or Rembrandt's etchings? But, when the speculation is in energy, food, land, and other things that the productive economy and ordinary people depend on great harm is always done as the speculation drives up prices often beyond what those who actually need and will use the products to increase wealth for all can afford.

Speculation ought to be confined to frivolous things that titillate and enthrall the bored, easily amused rich.

[Yarn]

Investment does not need speculation. By that I mean trade in the shares of a company or other "things". Investment at its social and economic best takes on two forms: equity and debt. An investor can invest in an enterprise and share in the enterprise's profits or lend an enterprise funds and earn interest. Speculation happens when stocks or commodities are traded in anticipation of speculation artificially driving up the value of what is being traded. It's casino, and nothing more. When there is speculation in wheat futures, prices rise even though neither supply nor demand change. Speculation is an economic disease that only benefits the disease organism, the speculator, and it harms the host, regular people and the productive economy.

Now your talking merely about differences in intent. How can you effectively ban a form of intent?

[ironeagle]

Most Americans live in cities. This isn't a viable option for the majority of them.

Not in third world undeveloped countries they don't. And if the ones who do isn't it their own( as in the people as a collective) fault for destroying all the land, plants and environment that they have no food?

[ironeagle]

So it seems I am missing an element of the conversation. How does speculation raise the prices of food? Is it a matter of price fixing? Does a bet or assumption on wallstreet force a farmer in Iowa to raise the price of their corn? I don't understand what exactly speculation is?

[Yarn]

So it seems I am missing an element of the conversation. How does speculation raise the prices of food? Is it a matter of price fixing? Does a bet or assumption on wallstreet force a farmer in Iowa to raise the price of their corn? I don't understand what exactly speculation is?

Speculators buy futures contracts to pay for a fixed amount of food at a fixed price at a predetermined time in the future. They do this because they gamble that when they pay for the food at the contract price in the future, the market price will have gone up enough that they can sell it for a profit. Those who sell the futures contract in turn charge more than the going rate and gamble that when the food is sold to the contract holder the price of food will be lower than what the contract holder agreed to pay for it.

As more and more investors buy futures contracts, more and more investors buy them merely because they expect that other investors will buy them and not because of real world conditions. With enough momentum behind it, this can cause a bubble in the price of food or whatever other good you wish to discuss.

In the case of some commodities, such as copper right now, investors will buy it and keep it in storage based on the belief that in the future they will be able to sell it for more than they bought it for. In a sense, most countries that produce oil do this with their oil because they rarely pump out oil at peak capacity.

Paul Krugman, a prominent liberal economist, questions the validity of the futures contract argument on the basis of the fact that global food inventories are declining, not rising, and that if investors aren't keeping food out of the market, then how could they possibly be responsible for the price increases?
http://krugman.blogs.nytimes.com/201...f-speculation/

Or maybe food inventories aren't declining...
http://www.nakedcapitalism.com/2011/...is-flawed.html