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Saturday, June 25, 2011

In Defense of Speculators - government FED Oil Commodities


Once again governments are attempting to blame wildly fluctuating commodity prices on speculation and speculators.

The rise in oil prices, and other commodities, are always blamed on speculators. However, the decrease in those same prices is never credited to those same speculators. Normally lower prices are credited to the outstanding economic policies of central banks and governments.

You can't have it both ways..

The thing about speculators is they don't care if the price of any trading vehicle is going up or down.. Speculators seek to profit on the "fluctuation of price" in either direction. Not to drive price higher or lower.

And it is seldom, if at all, talked about what this speculation is based upon. Speculators base their collective actions on the economic and monetary polices of central banks and governments.

In the current world economy it is quite obvious to most speculators that the intention of the Federal Reserve Bank of the United States of America is to prop up a severely damaged U.S. economy by intentionally devaluing our currency.

Whether or not that is a good or bad idea is beside the point of this post. It just seems to be a fact. Government (ie; central bank) manipulation of the value of their currency is certainly nothing new. The United States dollar has lost 96 percent of it's value since the inception of the Federal Reserve Bank in 1913. I seriously doubt that is merely some sort of accident.

But the point here is that speculators base their speculation on the policies of governments and central banks.

When we look at the price of oil the two, or three, real major players appear to be OPEC, middle eastern oil producers worried about profits, pitted against world governments and central banks worried about global economic stability and growth.

OPEC attempts to support the price of oil through supposed management of world oil supply to reflect the proper pricing of the commodity.

Governments, for the most part, seem to claim that they have little control over OPEC and oil prices are at their mercy.

In truth virtually all commodity price "manipulation" can be credited to these major players, not speculators.

However, as we have seen over the last couple of years, it appears that central banks are actually the ones who control all the cards in the matter of commodity prices. For the most part with the blessings of their governments.

Monetary policy is a weapon of mass destruction.

As the Federal Reserve Bank of the United States of America has intentionally devalued it's own currency by printing massive sums of money from thin air we have seen the price of nearly all commodities skyrocket as a result.

So why does the Federal Reserve Bank intentionally devalue it's own currency?

In a word debt..

The Federal Reserve bank is actively monetizing the debt of the United States government by printing massive amounts of money & using that freshly printed "paper" to purchase government bonds / treasuries to keep interest rates low. This helps make sure the debt of the United States remains serviceable.

The problem is that this massive amount of currency printing, which directly affects the value of our currency, also forces inflation upon us all.

Speculators merely see and understand the irresponsible actions of governments and central banks and react to that information, or policies, by taking a position in markets in anticipation of the results.

So.. the next time you here government officials, or even the Federal Reserve Banks, blaming speculators for commodity price fluctuations try to remember that in reality it is governments and central banks who are pulling all the strings.

Speculators merely "react" to the pulling of the strings.

Speculators are no different than you. They work very hard to try to make a living. They do this by attempting to understand and analyze what is going on in the world of economics. Which, by necessity, includes analyzing the policies of central banks and governments.


Couple of interesting related articles

ABC’s expectations, based on the Monetary Policy Review, May 2011

Global currency speculation and its implications

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