An Experiment in Scotch

"I write to discover what I believe." Michael Lopp on Twitter

Ayn Rand Has To Be Doing Grave Gainers

Lots of words have been writ­ten lately about oil and why it’s trad­ing at $135+ a bar­rel and what Con­gress can do about it and blah blah blah. Of late, most of the blab­ber­ing has been about spec­u­la­tors and how they drive the cost of oil up arti­fi­cially. Today, on Capi­tol Hill, one Michael Mas­ters of Mas­ters Cap­i­tal Man­age­ment claimed that if Con­gress were to find a way to elim­i­nate so-called spec­u­la­tors from the mar­ket, oil would be trad­ing at some­where near its fair value of $65-$70 a bar­rel within 30 days.

Wouldn’t that be nice? If we just elim­i­nated spec­u­la­tors from the mar­ket, we could all afford to drive to work again. Who wouldn’t want to get in on that deal? Those crazy spec­u­la­tors, dri­ving up the price of oil when all I want to do is drive to work with­out it cost­ing me $60.

The prob­lem with this amaz­ingly easy fix for our gas wor­ries is that’s it is most likely pure, unadul­ter­ated bull­shit. It’s a fix for a prob­lem that is easy for politi­cians to get behind in an elec­tion year but isn’t likely to solve things in the near or long term and also has unfor­tu­nate effect of hav­ing no effect on the actual prob­lem that’s caus­ing not only the rise in oil but also the rise in gold and corn and every other com­mod­ity right now. That actual prob­lem is that our mon­e­tary sys­tem is seri­ously screwed up and that paper money isn’t worth very much.

Tim Iacono has been yelling this for two years now and of course, no one is lis­ten­ing. Look, does any­one out there really think that infla­tion is cur­rently in check? Think your pay­check goes just as far as it did 12 months ago? Think it makes any sense at all for the gov­ern­ment to mea­sure infla­tion with­out mea­sur­ing food or energy these days? Really?

The cause of that infla­tion is that for the past 5 years, money has been cheap. That’s why we have a hous­ing mar­ket cat­a­stro­phe on our hands. When the world is awash in cheap money, the major­ity of it being in US Dol­lars, that money has to go some­where. When the hold­ers of large num­bers of Dol­lars can’t make money real estate or bonds or the mar­ket, that money goes into com­modi­ties, includ­ing oil.

From Tim’s post linked above, I couldn’t agree more with this statement:

Just once it would be nice to hear some­one say to Con­gress, “There’s just so damn much paper money in the world today, most of it in the form of U.S. Dol­lars, that peo­ple feel they have to do some­thing to pro­tect them­selves from its declin­ing value. If the gov­ern­ment would be a lit­tle more hon­est about infla­tion and if you could get a rea­son­able rate of return on your money else­where, then maybe pen­sion funds wouldn’t be so keen on buy­ing oil futures”.

It’s crit­i­cal to under­stand that it’s not the peo­ple in the mar­ket spec­u­lat­ing on the price of oil in the next 12 months that are the prob­lem. It’s the fact that the Fed and the US Gov­ern­ment have made the US dol­lar damn near worth­less in the world’s eyes through mis­steps and blun­ders. That’s the problem.

The next time you fill up and it costs you $60 or $75 or $100, don’t blame spec­u­la­tors. Blame Con­gress. They are the ones at fault here. Until they can face the hard prob­lems of infla­tion and the dollar’s con­tin­u­ing decline, com­modi­ties includ­ing oil will only con­tinue to get more expen­sive. Elim­i­nat­ing spec­u­la­tors isn’t going to do a damn bit of good and is far more likely to have unin­tended con­se­quences that are a great deal more painful than $4 a gal­lon gas. If we allow them to arti­fi­cially affect the mar­ket by elim­i­nat­ing a sig­nif­i­cant por­tion of pos­si­ble investors, the mon­e­tary sys­tem is only going to get sicker and it isn’t com­pletely implau­si­ble that it might get ter­mi­nal. Fix the core prob­lem, not the symptoms.


  1. My ques­tion is who gave politi­cians the right to reg­u­late every aspect of our soci­ety? Why does gov­ern­ment have the right to hold off from explo­ration and drilling of lands that the free mar­ket would put to use? Who gave envi­ron­men­tal­ists the right to hold our energy use hostage for the sake of a the­ory that hasn’t been proven; that man is respon­si­ble for global warm­ing or that, if it is hap­pen­ing, it is a bad thing? Who are these peo­ple who are keep­ing us from being a pro­duc­tive soci­ety? Who are these liars telling us it is time to reg­u­late our freedoms?

  2. Scotch Drinker

    June 25, 2008 at 7:47 am

    Thanks for stop­ping by Rob. In the­ory, we did all that. We gave the politi­cians the right to do all that by elect­ing them and then not hold­ing them account­able, by not mak­ing sure they were our true rep­re­sen­ta­tives, by not vot­ing at all, by becom­ing detached from the polit­i­cal process because it’s just not as impor­tant as the rest of the things in our lives. We keep us from being a pro­duc­tive soci­ety because we elect those people.

    An unat­tended gov­ern­ment gets large in the same way an unat­tended tumor does. It takes con­stant vig­i­lance to keep gov­ern­ment small because it has a ten­dency towards the oppo­site. With­out that vig­i­lance, we only have our­selves to blame for how our soci­ety is turn­ing out.

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