Wednesday, July 23, 2008

Get The Speculators!!!

Yeah!!! Get 'em!! They are the reason gas prices are so high!! Get 'em!!!

What utter and complete socialist bull pucky.

Here we go with yet another example on how Congress really knows nothing about how supply and demand works.

Here is how speculation works. I, a private citizen, think that in the future oil will be worth a lot more. So, I buy oil at $10 barrel. Sure enough, six months later oil is at $20 a barrel. I sell my barrel and pocket $10. Easy right? I am an oil speculator!! Because oil is a commodity, there may be many who think the same as I and buy oil at $10 as well. This helps to raise the price, because the oil is purchased and now off of the market. Because of my, and other's, speculation when the shortage that I predicted occurs the already higher price of oil helps keep supply from running out.

Enter the Government. They say NO MORE OIL SPECULATION. Now when the shortage comes there was no market preparation and BOOM!! Not only do you have sudden high prices, but you have shortages, rationing, and other nastiness.

Don't believe me? Check out what happened during the Oil Embargo of the 1970's. At that time oil speculation was illegal. When the oil embargo came it came with sudden sky high prices and shortages.

Speculation also comes with a risk. I don't actually know if the price will go up after I buy oil. It could go down. What if after I bought oil at $10 a barrel, a sudden glut came on the market, and the price went to $1 a barrel? I just lost $9.

The absolutely stupid thing here is that if the U.S. acts to make oil speculation illegal, it will not change oil speculation one little bit. Oil is a global commodity, and the economy is now a global thing. I simply will not buy oil on the American market, I will buy it in the Hong Kong market, or the British market, or somewhere else. Perhaps this would have worked to curb speculation before the days of the Internet, but not today. The only thing that this does will hurt U.S. companies.

Way to go Congress. Way to go. Idiots.

Dr. Williams does a much better job of explaining things.

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