Tags: Speculators | Iran | Gasoline | Prices

CNNMoney: Speculators, Not Iran, Are Driving Up Gasoline Prices

By    |   Wednesday, 21 Mar 2012 02:10 PM

Blame Wall Street, not Iran, for rising gasoline prices. Excessive speculation is driving up gas prices, argues Dennis Kelleher, president of Better Markets, a nonprofit reform group, in an editorial for CNNMoney.

A Better Markets study affirms that the $400 billion poured into commodity index funds created by Wall Street has distorted the market and sent prices up, writes Kelleher, who argues that the index funds should be prohibited.

There is broad agreement that excessive speculation is needlessly driving up commodity prices, writes Kelleher, a former securities lawyer. Even Goldman Sachs, which created the index funds, has admitted it.

Commodity futures markets were created so farmers could sell the wheat they planned to grow at current prices. That let farmers know the price of their wheat when they planted their crop, and let buyers know the price they would pay in the future. Futures markets developed for producers of other commodities.

"Speculators are allowed to participate on a limited basis because there aren't always enough sellers to match demand for buyers, or buyers to match the availability of sales," he explains.

Commodity markets work best when commercial traders take up 70 percent of the market and speculators are limited to 30 percent, he says. But now that ratio has flipped and speculators dominate, mostly because of commodity index funds.

"There has to be an incentive for sellers to come into the market and take the other side of those contracts," Kelleher writes. "That incentive comes in the form of higher prices."

The Commodity Futures Trading Commission set a ceiling on speculation, but Wall Street wants a federal court to overturn even that small step.

Paul Abrams, writing for the Huffington Post, agrees that speculators have driven up gas prices. A 70 percent tax on oil speculation profits would reduce prices, argues Abrams, an entrepreneur and biotechnology consultant.

Legitimate hedgers would be exempt.

"Note, this is not a tax on oil itself or even on oil companies. It is a tax on speculative profits made on Wall Street trading desks," he writes.

© 2017 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
341
2012-10-21
Wednesday, 21 Mar 2012 02:10 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved