| |
|
Making it harder for the speculators
Re Next bubble: Food (and other necessary commodities)
I have also been looking into the “food crisis” after noticing that around the world food prices are increasing (a new bubble) -- mine sure have increased. The government in Turkey has been announcing that it’s being caused by speculation, yet no action to curb it has been taken that I know of. One consumers’ group is urging everyone to stop buying rice until the price goes down -- will this tactic work? Will those holding the stocks feel pressured to lower the
|
|
The more prices rise, and big profits are made, the more others invest, hoping for big returns. Look at the financial web sites: everyone and their mother is piling into commodities. ...
The trouble is that if you are one of the 2.8 billion people, almost half the world’s population, who live on less than $2 a day, you may pay for these profits with your life.
|
|
|
|
|
prices? In addition, the government has announced that there are enough stocks of everything. In other words, they are saying that there are no problems with the supply of food -- will this stop panic buying/hoarding?
So, what can be done, if anything? That’s my focus here. Of course, there are some coping measures, but what about really reducing the speculation going on -- that DOES seem to be crucial?
Coping measures -- Here the extended family members living in villages and small towns will probably send some foodstuffs to their relatives in the city, but not for a lengthy period of time. Some of the poorer neighborhoods also have good farmer’s markets where the foodstuffs sold are cheaper. However, incomes will NOT be able to stretch very far if prices keep going up. As for the middle class who mostly shop from the supermarkets and pay the highest prices, they CAN make special trips to those farmer’s markets to save some. In the end, for the employed, it will mean spending a higher percentage of their income on food and cutting down on other spending which will start to impinge on all of the stores selling other items and on restaurants -- a recessionary spiral.
In the US, as far as I know, there are various ways to cut out the middleman -- using the Internet, farm cooperatives, and bulk buying at outlets set up for this purpose. For those on low fixed incomes and the very poor, governments and NGOs will need to offer some emergency help -- some caps on prices, more food stamps, or more soup kitchens and handouts.
Reducing speculation -- This very to the point article explains that there has been “substantially increased” activity in basic commodities including foodstuffs by professional speculators, hedge funds, investment banks, and pension funds, and it’s all happened very quickly to compensate for the subprime mortgage crisis. However, it is getting out of hand, and it could “plunge more than 100 million people on every continent into hunger.”
This quote is included in the article: “Just like the boom [bubble] in house prices, commodity price inflation feeds on itself. The more prices rise, and big profits are made, the more others invest, hoping for big returns. Look at the financial web sites: everyone and their mother is piling into commodities. ... The trouble is that if you are one of the 2.8 billion people, almost half the world’s population, who live on less than $2 a day, you may pay for these profits with your life.” The article then shifts to a section called “Deadly greed” and explains that those who do this investing “give little thought to the catastrophic consequences of their speculative investment. ...” Ominously, there is this sentence, too: “speculators are even placing bets on water prices.”
So what is it that makes it so easy for all of these speculators to get “on board”? Firstly, what happens is that “large-scale investors ... buy futures -- shares in basic goods and foodstuffs to be delivered at a fixed day in the future.” They do this using leveraging. For example, as this article points out, a hedge fund could take in just 20,000 euros from investors and set up a fund that is used for borrowing more funds at leverage ratios that would enable them to actually invest 1 million. As indicated above, they could invest in futures contracts [an agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon today -- NOTE: commodity futures very rarely lead to the delivery of a commodity because positions are closed out before the delivery date. In contrast, forward contracts often lead to delivery.] So, as far as I understand it, without even buying up the stocks of an actual commodity these investors can enter commodity exchanges like the Chicago Stock Exchange.
This article indicates a way to slow down this sort of investing -- the very sort of investing that enables speculative bubbles to be created. One quote in the article says: “Commodities are way too high based on fundamentals [supply and demand?] ... The solution is simple; take away the leverage from the speculator by increasing initial margins [here, the percentage amount of the futures contract that an investor must pay for in cash-set by the exchange].” In other words, this article is suggesting that investors must pay a higher percentage in cash.
Now, “the major commodity exchanges require only 5%-10% of the gross contract value as a cash deposit to by [buy] a futures contract.” This could be increased. It would be something like requiring higher down payments from homebuyers. Thus, some speculative activity would be reduced since there would be speculators/investors unable to put up the extra cash. Also, the exchanges and those tied to it would be better protected against the “inevitable collapse”
Well, it sounds like a concrete, logical, sensible, and feasible idea to me. Will it happen? I guess it depends on whether there are any logical and sensible types in those decision-making positions. Putting some pressure on the commodity exchanges would help. Knowing that some business people actually do want to prevent financial crises does give me hope.
|
Marie K.
|
|
P.S. There was also this quote in the last article about the subprime crisis: “The U.S. real estate meltdown could have been avoided if the lenders had required a higher down payment, checked the financial condition of the borrower, and had differentiated between the primary homebuyer and the speculator.”
Roidberg replies
|
Our front page is free from nudity and profanity, but interior pages and external links may not be safe for work, and you may be shocked, offended, or in trouble with your boss. A link doesn't imply that we agree with every sentence and every sentiment on every site we link to. We use our noggins, and suggest you use yours.
Anything sent to Unknown News may be published. If you don't want it published, say so plainly. Of course, we publish all incoming hate mail.
|
|
|
| |
We sell our own progressive bumper stickers:
pro-peace,
anti-Bush,
pro-freedom,
anti-Republican
stickers you won't
find anywhere else.
$3 each or two for $5
bumper stickers
|
|
| |
|
Unknown News is more fun and more informative with your participation, so please don't be shy. Consider yourself invited to speak your mind.
Because we respect peoples' privacy, we do not keep records of friends' and contributors' contact information. This means we can't forward private communications between readers and writers, but we always welcome dialogue for publication.
When we publish incoming emails, we usually edit out the sender's last name, email address, or anything else that would tend to uniquely identify the author (if we slip up, please let us know). But if your email is unambiguously intended only to annoy, insult, or threaten us, we'll publish all the details, and leave it on-line forever.
We're especially interested in hearing and considering different perspectives. All we ask is that you conduct yourself sanely and civilly. For the most productive dialogue, it helps if you'll cite a specific article or concept we've gotten wrong.
You can contact Helen & Harry at <newsuneed at yahoo.com>. If that address ever fails, our back-up email address is <unknownnews at inbox.com>.
But please, don't email us unless you're really and truly, honestly, actually trying to send the publishers of News a communication you're not sending to anyone or everyone else.
Please don't send attachments or other cr*p we don't want.
If you're trying to reach us but getting no reply, it's probably because you've sent us cr*p we don't want, so we're filtering your emails into the trash, unopened and unread.
If you'd like to have your email address unblocked, simply send a sincere apology (from an un-blocked email address).
YOU CAN HELP
| |
|
| |
The dialogue page is our "letters to the editor" section.
To participate, email your comments to newsuneed at yahoo.com.
|
| |
