Gas Gamble

Thursday, March 31, 2011 - 10:24am

TYLER — Another 10-cent gas price hike virtually overnight this week, and we all look at the news and wonder why.

It has to be the Middle East, Libya, BP, ANWR, SUV drivers, Republicans or Democrats.

It is frankly none of the above, at least mostly. t is Wall Street.

If you want to know how a price bubble like this one happens, just look back 3 years ago.

Investigative reporter Matt Taibbi explains what happened.

“That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply,” Taibbi says. “But it was all a lie. The global short-term flow of oil has actually been increasing. In the six months before prices spiked, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped. Not only was the short-term supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.”
It didn’t and the reason was commodity trading on Wall Street.

Prices used to rise slowly and predictably from decade to decade for years, and there was a reason the market was so stable.

From 1936 to 1991, there was a law that declared a difference between people who bought and sold real, tangible stuff like corn, soybeans, cattle or oil, and those who simply traded paper.

Goldman Sachs asked the government in 1991, to remove that distinction for certain exceptions, and since then, speculation has been frantic, and driven by any number of reasons very few of them involving actual supply and demand.

By the way, those exceptions were granted privately to Goldman without the knowledge of Congress.

Commodities became a sort of bookie joint, and mutual funds, pension funds and others were in deep.

And when the price hit the pavement like a melon, everyone was hurt.

And so, here we go again. It isn’t supply and it isn’t demand. It’s gambling.

And since the big investment houses give liberally to both parties, politicians will keep pointing fingers at each other.
But never at the right guy.

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