Incredulity rises when one realizes that if gas prices rise because of speculation, they likely fall because of it, too. But when that happens, no one thinks to set up a posse.
The last time I wrote in this venue about gas prices, I predicted a gas price collapse. Which happened soon after. I wasnt particularly prescient. I just noted that nearly everyone was talking about gas prices rising forever and grew suspicious. So I found an economist wise to the peaks and valleys of such commodity pricing, and, with his perspective and forecast in mind, I realized that the necessary plunge was about to take place.
Now, no plunge seems imminent.
First, speculators and businessmen are privy to more information about real production factors than you and I are. Or any regulator on Obamas witch hunt team. It would be hubristic to pretend to know what the correct price for oil should be — if you are sitting on the sidelines with no skin in the game. (Speculators, barring leverage, put their skin in the game.)
Truth is, Obama doesnt have the courage to say I dont know what the price should be, and neither do you. That would be honest. Alas, he probably doesnt believe the corollary to this: I shouldnt be setting prices, anyway.
Second, though, is a perennial issue when it comes to price levels. The current gas price spike may be simply a reaction to the fall of the dollar. Gas prices havent really risen, people tell me (including readers commenting on my own Common Sense commentaries) — instead, the dollar in which prices are denominated is losing value (trillions thrown around by the Fed to ease our way out of a depression) so what is rising is the nominal price. Real prices have remained stable.
A good question to ask economists who study major markets is: Could speculation be the mechanism by which markets most quickly react to the inflationary actions of the Federal Reserve?
When prices rise, the first place to look is always to the Fed. Inflation is about money. Inflations advocates (and they have been many, throughout history, and they have a name: money cranks) place much of their hopes regarding the efficacy of increasing the money stock on people being clueless about the natural consequences of same.
And, most of us are. Which is why classic monetary inflationary pushes take time before the horror part of the cycle sets in, before panic ensues, before markets collapse and we hit the inevitable bust. It takes time for everybody to adjust to the new money influx.
But the modern world is filled with folks who arent numskulls. They anticipate inflation. So prices rise more quickly to meet the expansion of money.
If you want a conspiracy, or downright fraud, the oil markets dont look that promising. Not really. Look, instead, to money — which in the U.S. is controlled by our governments special creation, known since annus diabolis 1913 as the Federal Reserve System. Its job is to create money out of thin air — a sort of legalized fraud — and, when it really gets going, it can really do some damage. At present, its frantically trying to create a new boom to offset the last bust.
Great job, guys.
But, at the gas pump, we can see some of its effects.