post by Chris Bedford, Center for Economic Security
chrisbedford@charter.net
On June 3, 2008, Sen. Maria Cantwell (D-Washington) chaired a remarkable hearing of the Senate Commerce Committee on "Energy Market Manipulation". The entire hearing is available for viewing at the C-SPAN website. George Soros, Michael Greenberger of the University of Maryland School of Law, and Mark Cooper, Research Director for the Consumer Federal of America were among those who testified. The hearing was "remarkable" for its blunt language and depth of honesty rarely witnessed in the kabuki dance of swirling lobbyists in Washington. In essence, the experts agreed our pension funds, banks, and hedge funds have taken "a position" in oil futures, the amount of which is neither known nor regulated. Senator Phil Gramm (formerly of Texas) inserted language in a bill in 2000 that moved responsibility for exemption from regulation to control speculation from the speculator to the public. This meant that instead of a speculator having to request for an exemption from speculation regulations dealing with transparency, the minimum payments in a margin, etc -- the public had to challenge any deal they thought bad -- a fact that basically deregulated the futures market. So, we have today the core capitalist institutions that manage our investments, pension funds and guard our savings buying oil futures in the name of their fiduciary responsibility. And, as George Soros said in the hearing, "oil in the ground today is worth more than oil at the pump." So these "good guy" investors as well as greedy hedge fund maniacs are driving the futures market for oil. The result has been a prediction by one investment bank of $200/barrel oil very soon. Of course, this bank is thought to be a holder of large futures contracts that will benefit from $200/barrel oil. A conflict of interest? Well, in this deregulated market this is but a small crime. Michael Greenberger pointed out that the largest owner of fuel oil in New England is a New York Bank. The federal regulators treat this bank as if it were an oil company, producing oil -- not a speculator. Senator Olympia Snow of Maine spoke eloquently about the impact of $4.50/gallon home heating oil on her constituents. Their pension fund may be liquid but they have to choose between heating their homes and eating and healthcare. But I digress. With no margin requirements, no transparency, a weak and weakening dollar (in some measure because of the speculation) and real growing demand for oil -- financial speculators are creating a massive speculative bubble in oil. In the process, they have impacted farmers engaged in oil intensive industrial agriculture. The high price of petroleum based inputs (+ land rents) is effectively confiscating the "incredible profits" of $6 corn. In turn, some of this capital that controls the price of oil futures has invested in commodity futures because of the link between oil and industrial commodity production. A safe bet!? In my opinion, the speculative bubble and its consequences constitute another important reason we have to disconnect our food system from petroleum to the largest degree possible. Organic farming techniques, particularly those developed by the Rodale Institute, point to one way forward. Organic no-till farming builds soil health, sequesters carbon, dramatically reduces energy requirements, and strengthens our ecosystems, the real marketplace where our future will be decided. The current Farm Bill's support for oil intensive agricultural production (including ethanol) condemns us to the excesses of this situation. We can't wait for the next Farm Bill to turn this ship around. Oh, the price of oil. Mark Cooper of the CFA testified that the real price of gas at the pump, if you remove speculative pressures, would be $2.50/gallon.
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