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EDITORIAL: Energy markets and speculators

Congress looks for a bogeyman

Calling President Bush's proposal to lift the 18-year moratorium on new offshore oil drilling "a political gimmick" that he will not allow to come to the floor, Senate Majority Leader Harry Reid is instead pushing his own proposal, a bill requiring the Commodity Futures Trading Commission to curb excessive speculation in energy markets.

The bill, which stalled Friday when Sen. Reid was unable to find 60 votes to overcome GOP demands for numerous amendments including one to allow more offshore drilling, would require traders to provide more information about over-the-counter transactions, and also adds restrictions to U.S.-based traders buying and selling on foreign exchanges.


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  • (Rep. John Larson, D-Conn., would go much further, prohibiting anyone without the ability to actually accept delivery of crude oil from buying a futures contract on an over-the-counter derivatives market. "That could effectively eliminate speculative trading," CNN reports.)

    The Democratic strategy responds to fierce public pressure for the Congress to "do something" about soaring oil and gasoline prices. It presumes oil industry claims that prices are rising because of "supply and demand" considerations are bunk -- that the real problem lies with "speculators" bidding up the price of oil in the futures markets.

    Also on Tuesday, a federal task force led by the Commodities Futures Trading Commission and including staffers from the Departments of Energy and Agriculture, the Treasury, the Federal Reserve, the Federal Trade Commission and the Securities and Exchange Commission released an interim report on their investigation into the rising fuel prices, The New York Times reports.

    Their conclusion?

    The task force says its research "does not support the hypothesis that the activity of these groups (the futures traders) is driving prices higher."

    Instead, the task force found the rise in oil prices over the past five years is primarily due to -- guess what? -- "rapidly rising consumption and sluggish growth in energy supplies worldwide."

    Price hikes, of course, are a major way a properly functioning market notifies suppliers that it may now be worth their while to go explore for new sources, or to begin producing a commodity -- oil, in this case -- from sources previously judged uneconomical.

    Thus, despite the popular wailing, Economics 101 teaches us that rising fuel prices are not a problem, but rather a necessary step toward solving the real looming problem that we might not have seen coming but for the research of the futures traders -- oil supplies not rising quickly enough to meet near-future demand.

    "The report's key finding was that speculative investors more often changed their positions after prices moved, not before," The Times reported Wednesday.

    That suggests that these traders "are responding to new information -- just as one would expect in an efficiently operating market," the government task force reported. (The group's complete report is due in September.)

    "In identifying the drivers of energy prices," according to the Times, "the report noted that oil consumption grew 3.9 percent between 2004 and 2007. At the same time, oil supplies lagged that demand, with production growth from nations outside the Organization of Petroleum Exporting Countries slowing to levels well below historic averages."

    But if the markets are working properly -- simply serving as alarm bells to notify us of the real problems, which lie in the area of supply and demand -- what earthly good will it do to impose more restrictions on the free and proper operation of the futures markets?

    In fact, couldn't that do some harm -- kind of like silencing an obnoxious smoke alarm so it can't wake us up the next time?

    Given that reducing energy consumption would be a good way to cripple the U.S. economy, wouldn't it make more sense to -- just thinking off the top of our heads here -- build more refineries, and open likely new oil fields to drilling?

    Good heavens. If that's true, could that mean George Bush and the "evil oil men" are the ones who've been telling the truth, while it's Harry Reid and the Democrats who are "lying to the American people"?

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    Sad Summerlin wrote on July 28, 2008 09:03 PM: Michael - Regardless of who is at fault we still have a stalemate. You and I can argue until we are blue in the face over who is more at fault. And while we are arguing, our society is falling down around us. Something has to give in here...

    There is a lot of name-calling between partisans on this board and it is sad... I am now quite regularly hearing name calling of the President and Congress by the Democrats and I also see name calling of the Democrats by the Republican congress... but yes, I do not see name calling from the White House... that has to be something to be thankful for in this day and age...

    Harry Reid and Nancy Pelosi are completely ineffective. The Republicans during the Clinton years were more able to manage Congress with a Democrat President than the Democrats have done with Bush... and Clinton Vetoed 54 for bills with 2 overridden. They managed to pass legislation that crossed the aisle.

    I would like to see a complete restart of all the officials in Washington. We are making that effort here in Nevada with term limits, but I think it is time to give some new blood a try at our government (and I am not talking about Obama and McCain here)... I am talking about getting rid of the Kennedys, the Reids, the Pelosis, and any of the Republican's that have been in office longer than 12 years as well... I am an equal opportunity government pruner.

    What say ye?


    douglas wrote on July 28, 2008 08:40 PM: despite the leftist spin, the issue remains that the u.s. imports energy because we do not harvest enough of what we have. no matter the source, nuclear, coal, shale, tar, natural gas.

    as long as harry osama reid and his controllers [domestic ?] continually obstruct exploration of what we have, absolutely, positively, international energy auction costs rise.

    those who refuse to accept that are part of the problem and in no way part of any solution.

    thus those who oppose harvesting all u.s. resources, discard their ability to honorable complain about energy costs. honorably is the operative word.


    Michael Green wrote on July 28, 2008 08:27 PM: Sad Summerlin, I would love to see compromise. But Harry Reid said something: who is there to compromise with? Republicans have forgotten that Congress is a separate and co-equal branch (naturally, I was upset that Democrats felt that way when Clinton was president, but at least I can admit to my own hypocrisy). Look at the legislation that Democrats have tried to introduce and there has been no willingness on the other side to compromise. Maybe you and I could sit down and hammer something out. But I don't think Republicans have the ability or willingness.

    And Democrats did indeed filibuster or block some Republican legislation. But Democrats often compromised. That's how we have ended up with such dreck as the Patriot Act and the FISA legislation. And shame on them for that.


    Sad Summerlin wrote on July 28, 2008 07:31 PM: tim - you have a point... if HW Bush had finished the job, we might not be in this circumstance today, but there was a huge amount of pressure not to go into Baghdad and finish the job... The mission was to remove Saddam from Kuwait and the treaty halting the conflict involved the certain protocols that Saddam continued to violate during the Clinton years.

    But then we cannot always live in history, otherwise we can talk about the fact that we armed Saddam against Iran, or that we took the side of the Shah and then abandoned him, or we took cause to kill specific leaders to deploy oil fields, or the Brits drew the lines wrong or Mohammad didn't really leave clear indications of an heir....

    See... it is always easy to Monday morning quarterback every geo-political issue in the Middle East, but we have to learn to live with our mistakes and hope that we don't continue making more mistakes...

    We have too many people that want to re-write history to make their current day political point... the bottom line... we believed Saddam to be a threat to the region during the instable times of global terrorism... we took him out and vastly underestimated the response... that's truth... each side will spin (Bush lied, it was all about oil, we did the right thing, there really were WMDs).... but in the end, I believe we made the best decision we could have made, and just blundered some of the results...


    tim wrote on July 28, 2008 07:14 PM: when you guys get done kissing each others butts,oh never mind.


    tim wrote on July 28, 2008 06:49 PM: liberals,can't see logic sad s.,they only see hatred of bush.forget those killed by sadistic dictaters like saddam.he started the first war,we did'nt get to finish him off.when the fool kept on,he got what was coming,america was the only one to stop that nutcase,we all know that.but it all goes back to the hate bush hangup.that's all they know.


    Sad Summerlin wrote on July 28, 2008 06:40 PM: Michael...

    One more comment back to you from your earlier post...

    "I do not believe that Congress sits idle so much as it is in a state of paralysis. It takes 2/3 + 1 to pass anything progressive because Bush will veto it. It takes 60 senators to get a measure to the floor. How are those who want to seek real solutions supposed to accomplish anything? That is our system but, at the risk of seeming to let Democrats off the hook, the biggest mistake they made was in believing that Bush and his Republican supporters were reasonable."

    Do you recall that when the Republicans had a majority in the Senate, quite frequently Democrats cheered when they were able to hold up a filibuster to prevent certain appointments and certain legislations passing? Therefore, it took 60 votes to really pass anything that was related to the Republican agenda...

    The same people here that are begrudging the Republicans from holding up the progressive agenda, are the same who cheered when the Democrats held up the conservative agenda.... I don't support what either party is doing because we are paying these people to govern, not be stagnant.

    Our "leaders" should be finding means to compromise and come up with solutions... but instead, both groups are pandering to their bases and getting nothing done. Taking a hard line on an issue is easy... finding a compromise that works for all is the difficult work... too bad there are so few in our Congress that have that ability...

    Don't you agree?


    Sad Summerlin wrote on July 28, 2008 06:32 PM: John F -

    Richard Clarke and Bob Woodward sell books. It was Clarke's opinion that when Bush inquired if Saddam had anything to do with it and was told no that he was disappointed. This is an opinion, not a fact. Had Bush said as was quoted earlier "look for a reason to go to war with Iraq (or Saddam)" I would have been a bit more convinced.

    Further, the Woodward quote could be argued that the President was just further preparing for an eventuality of invading Iraq. By Thanksgiving, Bush had already developed the Bush Doctrine and was making preparations to strike those believed to be a threat before they actually made good on the threat. We all can debate whether or not that has been a good doctrine, but still, even Woodward doesn't source that Bush was planning the attack on Iraq the day after 9/11.

    In my view, the our world changed on 9/11 in the same manner our world changed on December 7th. We could no longer claim to act in world affairs from afar as world affairs were brought to our doorstep. How we responded to that in both cases was to bring the conflict to the foreign shore and keep it as far away from ours as possible....

    As a decedent of Jews killed by Hitler, I fully understand the monster and his rhetoric... and at the same time, I am often shocked how more don't see the same rhetoric from Iran or even Saddam? Remember how many of the Kurds Saddam gassed? Remember the threats Iran is making toward Israel...

    To keep the analogy going... the US in Iraq is all that is keeping Iran (Germany) from overtaking Israel (Poland)...

    It is possible.


    tim wrote on July 28, 2008 06:30 PM: how about harry reid shut his piehole,or wait shut his piehole and stop oil speculating.the best of both worlds.joes at it again with the name calling!this time with a different name,joe do the math!you ever serve joe?i doubt it,one who talks smack don't know jack.you guys need to get over the war thing.we are winning,must drive you commies nuts.


    John F wrote on July 28, 2008 06:01 PM: Sad Summerlin,

    From the Washington Post:

    "...there was plenty of evidence he (President Bush) had Saddam on his mind and in his sights from the very moment he got the news of the terrorist attacks on the World Trade Center and the Pentagon. We have it from Richard Clarke, formerly the White House's chief anti-terrorism official, that within a day of the attacks Bush was inquiring if Saddam might have had a hand in them. When told no -- "But, Mr. President, al-Qaeda did this," Clarke told him -- it became instantly clear that this was not the answer Bush wanted. "'Look into Iraq, Saddam,' the president said testily," Clarke writes in his book, "Against All Enemies."

    "Similarly, Bob Woodward says in his book, "Plan of Attack," that not only was Bush fixated on Iraq, but by Thanksgiving of 2001, he already had told Don Rumsfeld to prepare a plan for the invasion of that country. "Let's get started on this," the president said, cautioning the defense secretary not to tell anyone. Rumsfeld said that eventually he would have to take CIA Director George Tenet into his confidence. "'Fine."' Woodward quotes Bush as saying -- "but not now."

    The President may not have had a strategy for going to war with Iraq the day after 9-11, but he was sure looking for one.

    Not everyone hates war, and not everyone cares for the lives of others the way you do. That much is demonstrated on these pages daily.


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