Letter to Senator Joe Lieberman Concerning Oil Speculators

Dear Senator Lieberman:

I contributed to your recent campaign fund because I respect your views on the Iraqi War and your courage to stand up to the left-wing ideologues who have increasingly dominated the Democratic Party. I DISAGREE with your recent proposal to limit commodity speculation by pension funds. While short term price fluctuations over 1-2 years may result from speculation, if there is no underlying demand to support the price increases then the increases will reverse. On the other hand, no one really knows whether the price increases in oil result from speculation or from demand ensuing from general inflation. As you are undoubtedly aware, the Federal Reserve Bank has inflated the number of dollars in circulation around the World by a significant percentage, approximately 8 percent, over the past 25 years. These dollars have reduced interest rates, stimulating economic activity that has not been all that productive. In other words, the Fed has caused the sub-prime crisis, the tech bubble and probably stimulated excessive investment in commodities in the early 1990s. The excessive commodity investment led to low commodity prices in the 1990s (my former employer's stock, INCO or International Nickel, was selling at $10 per share for almost two decades). In turn, commodities firms closed. As well, farm land was used to develop real estate projects. This has led to shortages now in a range of commodities, to include milk, bread, gold and oil. I note that in the recent period of high gasoline prices, the gold price increases of the past 5 years have abated and gold has been below $900 for the past few weeks. If speculation is causing a run-up in oil prices, why isn't it causing a run-up in gold prices?

The correct response to excessive monetary expansion is not to limit speculation but rather to change the institutional structure, which is corrupt, that has led to the creation of large dollar investments in hedge funds, investment banks, Enron, and Bear Stearns. In other words, the Fed is corrupt and it should be changed institutionally. I believe it should be abolished in favor of competitive money supplies. That is, the money supply should be privatized. Illegalizing speculation will not end the problem of increasing gas and other prices. You are attempting to stop water from breaking through the dyke by passing a law against the ocean tides. Your proposal is misguided.