Commodities market speculation
| This article is a stub. You can help by expanding it. |
Commodities market speculation refers to trading in commodity futures by someone who does not produce or use the commodity but, instead, risks capital in the futures trade in the hope of earning a profit on the trade. Deregulation and legislative changes to the rules of such speculation have been implicated in discussions of volatile food and energy prices in the early 21st century as well as in the economic crisis that shook financial institutions in late 2008.
Contents
Commodity price volatility
Regulatory changes, in the U.S. and other countries, regarding speculative trading in commodity futures has been cited in discussions about possible causes of volatility in commodity prices, such as oil and gas prices[1] as well as agricultural commodities,[2] in the 1990s and 2000s.
Financial crisis
The decision by the Commodity Futures Trading Commission to leave trading in a particular class of futures contracts, over-the-counter derivatives, unregulated was one of many historical topics discussed in media coverage of the causes of the financial crisis that struck the global economy in 2008.
"Over-the-counter (OTC) derivatives are contracts executed outside of the regulated exchange environment whose value depends on (or derives from) the value of an underlying asset, reference rate or index. The classes of underlying assets from which a derivative instrument may derive its value include physical commodities (e.g., agricultural products, metals, or petroleum), financial instruments (e.g., debt and interest rate instruments or equity securities), indexes (e.g., based on interest rates or securities prices), foreign currencies, or spreads between the value of such assets."[3]
In May 1998, the CFTC, then chaired by Brooksley Born, issued a request for comments on a potential role for the CFTC in regulating derivatives trades.[4] Clinton administration economic advisors, including Federal Reserve chairman Alan Greenspan and Treasury Secretary Robert Rubin, opposed the idea of CFTC regulation, and the proposal was squelched.[5]
Articles and resources
Related SourceWatch articles
- Commodities Market Speculation: The Risk to Food Security and Agriculture
- Commodity Futures Modernization Act of 2000
- Commodity Futures Trading Commission
- Intercontinental Exchange
- JP Morgan Chase
- Morgan Stanley
References
- ↑ Staff of Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, U.S. Senate, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat, June 27, 2006.
- ↑ See, e.g., Institute for Agricultural and Trade Policy, Commodities Market Speculation: The Risk to Food Security and Agriculture, November 2008; Organic Consumers Association, "The Food Crisis: Global Markets and Deregulation Strike Again," Environmental News Network, April 23, 2008; Nic Wistreich, "Food for thought : how much are speculators driving the food crisis?," Netribution, April 20, 2008.
- ↑ Commodity Futures Trading Commission, Concept Release, May 6, 1998.
- ↑ "CFTC Issues Concept Release Concerning Over-the-Counter Derivatives Market," CFTC Release: #4142-98, May 7, 1998.
- ↑ Rick Schmitt, "Profit and Loss," Stanford Magazine, March 2009; Peter S. Goodman, "The Reckoning: Taking Hard New Look at a Greenspan Legacy," The New York Times, October 8, 2008.
External resources
- Futures Market Basics
- CFTC Glossary: A Guide to the Language of the Futures Industry
- The Economic Purpose of Futures Markets and How They Work
External articles
- Ramgopal Agarwala, "Speculation behind global commodity price rise," Information Clearinghouse, March 8, 2008.
- Organic Consumers Association, "The Food Crisis: Global Markets and Deregulation Strike Again," Environmental News Network, April 23, 2008.
- Staff of Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, U.S. Senate, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat, June 27, 2006.
- Nic Wistreich, "Food for thought : how much are speculators driving the food crisis?," Netribution, April 20, 2008.
- Jed Morey, "How Morgan Stanley Has Raked in Billions by Manipulating the Prices of Everyday Commodities", Alternet, February 21, 2014.
