Tuesday, 3 June 2008

Sky-rocketing oil and food prices - the latest investment bubble?

Are sky-rocketing food and oil prices due to global shortages, or the result of a speculative rush of billions of dollars into commodities trading? According to many economic commentators it's the latter. The sickness of the system that we live under is that a "speculative boom" in commodity prices is seeing poor people starve, and is causing enormous stress to cash-strapped working people across the world. The latest investment bubble has been created by the largely unregulated trade in what's known as commodity futures. How this works is explained by Petrino DiLeo, in an article

Gambling with the Futures from US Socialist Worker.
DiLeo writes: "Futures are [...] traded by individual investors and financial institutions, based on a gamble as to whether the price of the goods will rise or fall. Today, traders of exchange-traded funds, hedge funds and other speculators far outstrip the actual buyers and sellers of commodities. As a result, these speculators have generated a big demand for futures contracts, therefore helping send the prices of underlying commodities upward." Mike Whitney in a recent article titled
The Great Oil Swindle: How much did the Fed really know? also argues that it's unregulated futures trading that's sending the price of oil (and food) upwards. And that a lot of this investment is coming from US banks who've been bailed out to the tune of hundreds of billions of dollars by the US Federal Reserve after the collapse of the housing and sub-prime mortgage markets. These big banks, argues Whitney, are trying to speculate their way out of the financial crisis through investing in oil and food futures. Not only are these banks the recipients of corporate welfare of truly historic proportions, but what they're doing with that money is inflicting pain and suffering on the majority of the world's population. Whitney claims the rising cost of oil "is a hoax cooked up by the investment banks and hedge funds who are trying to dig their way out of the trillion dollar mortgage-backed securities (MBS) mess that they created by turning garbage loans into securities." He quotes another financial analyst who calculates that at least 60% of the current price of oil comes from futures speculation by hedge funds, banks and financial groups, who are using unregulated futures exchanges to avoid public scrutiny. While perhaps overly dismissive of the current and future impact of Peak Oil, Whitney's analysis is compelling. The bigger picture is that trillions of dollars circulate the globe daily looking to be invested in shares, property, currency, commodities, and phony markets created to gamble on price or interest rate fluctuations, which points to the fact that the real economy - the one where goods or services are produced and purchased for actual use - is not delivering the profitable returns the capitalists want. This underlying economic crisis could not be avoided forever, and is now impacting on the global economy in a big way. What's important for us to realise is that this economic crisis is rapidly intensifying a global political struggle, where the naked self-preservation of the rich elites comes up against the rising anger of grassroots people. Like any war - which is what this indeed will be - it will be decided by superior organisation, strategy and will. Our side needs to build the political structures within individual countries and internationally to mobilise the world's grassroots majority in this historic struggle.  

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1 comment:

Editor said...

What's Really Driving The High Price Of Oil? By Ralph Nader


Oil was at $50 a barrel in January 2007, then $75 a barrel in August 2007. Now at $130 or so a barrel, it is clear that oil pricing is speculative activity, having very little to do with physical supply and demand. An essential product—petroleum—is set by speculators operating on rumor, greed, and fear of wild predictions