Yesterday President Obama introduced a new initiative to increase Federal oversight in commodity markets in response to the increase in gas prices. The rationale behind these measures being necessary is as follows:
We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher — only to flip the oil for a quick profit. We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick. That’s not the way the market should work.
In other words: Those Evil Speculators are back, and they’re gouging the American consumer for oil while taking large sums in the process. Most people quickly and correctly dismiss this as political talk, looking to deflect the negative impact of high gas prices by blaming it on some nefarious actors that must be defeated at once. Of course this is going to cost money, $52 million to be precise, in order to:
put more cops on the beat to monitor activity in energy markets. This funding would also upgrade technology so that our surveillance and enforcement officers aren’t hamstrung by older and less sophisticated tools than the ones that traders are using. We should strengthen protections for American consumers, not gut them. And these markets have expanded significantly.
In other words, we need to beef up the army of regulators and combatants against market manipulation, evidence of which has been severely lacking. The president never cited any commissions or studies or anything that suggested that market manipulation was pervasive recently. The only thing that is seemingly amiss is that the price of oil has been rising. As I stated before, most people who have commented on this have dismissed this as political strategy from the President, but I haven’t seen many discuss the real issues behind the price of oil rising. Many have discussed the usual bogeymen – namely geopolitical concerns, increased foreign demand and Peak Oil – but none of that explains why oil prices cratered in the Financial Crisis of 2008. The truth is that the financial landscape we are in today is one that is almost totally dependent on the state of liquidity and credit. If it is available, prices will rise, if not, prices won’t. Central banks worldwide have been doing their utmost to make sure that the spigots are open.
Quite simply, if President Obama wants to get to the crux of the oil problem, he will have to look inwardly at his policies and that of Ben Bernanke’s at the Federal Reserve. The expansionary policy favored by both has manifested itself in rising prices of commodities, including oil. This is as it should be; there should be little confusion as to why. The fact that ‘these markets’ have expanded is to be expected when you pump trillions in liquidity into them. President Obama can’t have it both ways. He can’t take credit for the rise in stock prices since the beginning of his administration, as he has in passing a few times, while bemoaning the rise in oil prices. They both have come about the same way: increased liquidity emanating from government policy and central banks searching for real assets.