Commodity traders know the sky’s the limit because the key safeguards in Dodd-Frank that would rein in speculation are still mired in the rule-making process with the Commodities Futures Trading Commission.
Traders know they can also freely bet against a falling dollar. Oil, gold and other dollar-denominated commodities move inversely to the buck.
Speculation policing, however, is not on the books. The GOP budget plan even calls for cutting the CFTC’s staff by two-thirds, so even if the more stringent Dodd-Frank rules emerged, the agency may not have the cops to enforce them.
Congress has known for a while that speculators rule the roost and force oil prices higher. For years, political shaming sessions would be staged in front of key energy committees, but these wet-noodle floggings of oil company moguls never resulted in any meaningful investigations or tougher laws.
Meanwhile, oil companies and traders gorge on obese profits. Exxon-Mobil even had the cheek to post a recent blog noting “…it’s really not credible to suggest that we are responsible for world oil prices.” Sure, and Donald Trump has never made a dime in real estate and hates publicity.
Washington has already seen the evidence for speculative abuses. A long-forgotten 2006 report by the Senate Permanent Subcommittee on Investigations, showed that not only were speculators buying oil contracts for petroleum they would never use, their trades were run through opaque, unregulated exchanges.
The subcommittee faulted what it called the “Enron loophole,” (yes, that Enron) which Congress inserted in an infamous 1999 law deregulating commodities trading that permitted unpoliced over-the-counter exchanges. These devilish enterprises allowed derivatives such as credit default swaps to grow into a $60 trillion market — and we know what happened with those monsters in 2008.
Although the Senate probe concluded that speculation put oil prices on steroids two years before Wall Street’s massive meltdown, the money trust still wants to let speculators have their way. As a result, gasoline is above $4 a gallon in many urban areas with no ceiling in sight as politicians blame each other.
Of course the big Wall Street firms are making piles of cash off commodity speculation. "Helicopter Ben's wrecking the dollar, all major central banks are trying to devalue their currency! The flight to commodities is his fault!" But when it comes to regulating commodities speculation and derivatives, we're met with nothing but silence.
Derivatives are the multi-trillion dollar Cloverfield monster in the room, folks. Until they are reigned in (and Republicans and even some Democrats will make sure that never, ever happens) we'll continue to get screwed by these speculation cycles.
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