PRICK THEIR BUBBLE:

Investors' Growing Appetite for Oil Evades Market Limits: Trading Loophole for Wall Street Speculators Is Driving Up Prices, Critics Say (David Cho, 6/06/08, Washington Post)

The federal agency that oversees oil trading, the Commodity Futures Trading Commission, has exempted these firms from rules that limit speculative buying, a prerogative traditionally reserved for airlines and trucking companies that need to lock in future fuel costs.

The CFTC has also waived regulations over the past decade on U.S. investors who trade commodities on some overseas markets, freeing those investors to accumulate large quantities of the future oil supply by making purchases on lightly regulated foreign exchanges.

Over the past five years, investors have become such a force on commodity markets that their appetite for oil contracts has been equal to China's increase in demand over the same period, said Michael Masters, a hedge fund manager who testified before Congress on the subject last month. The commodity markets, he added, were never intended for such large financial players.

"I've never said that financial speculation is behind all of the recent price increase here, but even if it's some of the reason, it's something society needs to look very hard at," he said.

We all own houses, but no one will mind watching these guys get wiped out, and there's any easy way to implode the bubble, Floor It: Drivers have a taxing problem (Charles Krauthammer, 6/06/08, National Review)

Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don’t regulate. Don’t mandate. Don’t scold. Don’t appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.

Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians, and Iranians do the taxing for us — and pocket the money that the tax would have recycled back to the American worker.

This is insanity. For 25 years and with utter futility (starting in February 1983, with “The Oil-Bust Panic” in The New Republic), I have been advocating the cure: a U.S. energy tax as a way to curtail consumption and keep the money at home. In May 2004 (and again in November 2005), I called for “the government — through a tax — to establish a new floor for gasoline,” by fully taxing any drop in price below a certain benchmark.

The point was to suppress demand and to keep the savings (from any subsequent world price drop) at home in the U.S. Treasury rather than going abroad.

Posted by Orrin Judd at June 6, 2008 7:50 AM