Results

One cannot run experiments or collect enough data to prove or disprove many ideas about the world economy, but occasionally the time evolution of some actual observables permits one to accept or reject theories. The past few months' trajectory of oil prices does let us educe the truth of one theory, viz., that pension funds and speculators were driving up oil prices to levels unsupported by real supply and demand. On July 7, I wrote a blog post on the causes of high oil prices near $140, laying out that theory, while also detailing the causes of the long base of support for oil prices near $100 from real supply and demand causes.

From my commodity data services [see http://www.barchart.com/ and http://www.futures-research.com/ ] one can readily see that beginning about February, gasoline demand versus last year was down significantly. At that time the price of oil was struggling to break $100 per barrel. During that period, much pension money was flowing into indexed commodity "investments". So this flood of money then overwhelmed natural hedgers' capability to sell forward. And the break through of $100 per barrel created a favorable chart pattern. This led to massive speculative longs flooding market, too. All the funds saw the same pattern and barged in.

So oil prices rose parabolicly until early July. Over that same time period, the US gasoline demand continued to be markedly lower than last year and that drop increased. No summer driving season bump in demand occured. So prices rose while demand fell - odd behavior in a "rational" and "efficient" market.

Finally in early July, after the flood of pension fund money had petered out and some talk began about restricting both their "investments" and position size of speculators, too, oil prices began to fall rapidly. Did demand data change ? No, the same pattern persisted that had been in effect for months. What happened ? The pension fund and speculative buyers just ran out of new long money. The whole run up from $100 to $147 was a pure bubble, a mass delusion. And millions of people have been hurt by this flood of money chasing their Holy Grail, viz., more money.

This example explains why a populist libertarian like me wants to restrict the power of the big money pools to damage the US and world economy. I just don't like the rich and powerful - the ruling classes - fouling the lives of billions in playing their games to get more .. and more ... and more. Empires have fallen due to the greed of the aristocracy in grinding down the common man. This must not be allowed to happen again.

The big money pools need to be strictly regulated.

Word of the Day

"Sward" - noun [$10] eps. literary [used in Goethe's Faust, part II of the Great Books edition]
Sward means 1. an expanse of short grass; 2. turf.
Sentence: Golfers somehow enjoy hitting a little ball on long swards towards a little hole with a club, while bearing stress and using unusual grips like the "claw" to lower their score. Oh, man is a strange beast !