Liberals are not ignorant

3 Ways to Lower Gas Prices

Liberals are not ignorant, just anti-American – but that’s speculating. Neoconservatives, i.e., liberals who hold relatively few conservative views, such as Newt Gingrich, are simply badly uninformed about some of the issues they publicly address. Because they call themselves conservatives, but in reality are not, conservatives tend to listen to them. As a result, neoconservatives often get elected with the conservative vote. Unfortunately, while well intentioned in many cases, liberals disguised as conservatives do a lot of harm due to their profound ignorance on many subjects. Senator John McCain and President George W. Bush are two prime examples that will resonate in history and folklore forever.

Why is this important? You’ve had questions about rising energy prices, and record oil profits have been brought into question. You've listened to what the politicians and main-stream-media are telling you. You know intuitively that their commentary is sound – all sound. So, what is the truth? First of all, not attempting to be profound, the truth simply is.

See if you can spot the neoconservative .....

Democrats want to implement windfall profit taxes, which ultimately will be passed on to the consumer at the gas pump and raise prices ever higher – significantly higher. The outcome is a foregone conclusion, i.e., politicians cynically win, having found a way to take even more of your money, and citizens lose. Republicans, i.e., neoconservatives, knowing that raising taxes would be a national economic disaster, want instead to punish the speculators who they choose to scapegoat for the rising prices. The similarity between the Democrats and Republicans (neither of whom are conservatives) is their propensity for shifting the blame for their own congressional malfeasance to anyone but themselves, refusing defiantly to take responsibility for the on-going energy debacle. ‘Shifting the blame’ is the single most common character trait of a liberal – every liberal. They, being the typical congressmen they are, would sacrifice their relatives before accepting accountability, even their grandmother.

The energy crisis we face as a nation due to lack of oil, nuclear, coal, refineries, and absence of exploration will never be their fault, just as the loss of jobs and outsourcing of entire industries is not their fault, just as the drunken overspending with earmarks and entitlements is not their fault, just as the abysmal failure of our nation’s public schools is not their fault, nor the open borders, nor the failing Social Security and Medicare systems.

Here is everything you need to know in two articles. The first appeared in the Wall Street Journal in February, 1989 and the second in Investor’s Business Daily on June 23, 2008

Red State Patriot
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The Speculator as Hero
Wall Street Journal
February 10, 1989

This is not a good time for speculators. Last month the FBI and the Chicago U.S. Attorney's office accused more than 100 traders on the Chicago commodities exchanges of systematically cheating investors and the government out of millions of dollars. Lawyers in Chicago have been besieged by floor traders wishing to plead guilty to the charges.

Coming on the heels of the October 1987 stock market crash, popularly thought to be the fault of program traders and portfolio insurers, and amid the popular furor over insider trading, the speculator's stock may be at an all-time low. Even fictional speculators are in trouble. In Tom Wolfe's best seller "Bonfire of the Vanities," bond trader Sherman McCoy is ridiculed by his wife, and is unable to explain what he does for a living to his young daughter. In real life, noted currency trader Andy Krieger, in a widely reported incident in 1987, quit his job after he found himself unable to supply a satisfactory answer to his eight-year-old son's question about what good his job did.

Like Sherman McCoy and Andy Krieger, I am a speculator. I own seats on the Chicago Board of Trade and Chicago Mercantile Exchange. But when my daughters ask me if my job is as important as the butcher's, the doctor's or the scientist's, I answer that the speculator is a hero, and has been throughout history.

Some speculators are discoverers like Christopher Columbus, creators like Henry Ford, or inventors like Thomas Edison. Their job is easy to place on a high plane. My role in the grander order is indirect, relatively invisible and unplanned. The only discoveries I make are the routes that prices will travel. Like hundreds of thousands of other traders, I try to predict the prices of common goods a day or two or a few months in the future. If I think the price of an item will go up, I buy today and sell later. If I think the price is going down, I'll sell at today's higher price. The miracle is that in taking care of ourselves, we speculators somehow ensure that producers all over the world will provide the right quantity and quality of goods at the proper time, without undue waste, and that this meshes with what people want and the money they have available.

Politicians eager to "do something" about high prices often make laws to punish the speculator. A representative incident occurred during the reign of Emperor Diocletian in Rome in A.D. 300. Speculators were withholding scarce provisions from the hordes, hoping to unload when the demand was even more intense. To remedy this, Diocletian set the highest price for beef, grains, clothing and several hundred other items. Anyone who sold at a higher price would be put to death.

The result? As reported by Lactantius in A.D. 314: "Much blood was shed upon slight and trifling accounts. The people brought no more provisions to the markets, since they could not get a reasonable price for them, and this increased the dearth so much that at last after many had died by it, the law itself was laid aside."

Another representative incident occurred during the siege of Antwerp by the Spanish in 1585. Antwerp was then the leading commercial town of Europe. The Spanish decided to blockade the port to force surrender when supplies gave out. Knowing this, Antwerp farmers and bakers produced large amounts of bread. Privateers ran the blockade at great peril to provide needed supplies. Prices began to rise. Speculators, guessing that bread was going to be scarce, contributed to further price rises through shrewd purchases.

But Antwerp politicians thought it wrong for greedy speculators to profit from war. The politicians fixed a very low maximum price to everything that could be eaten, and prescribed severe penalties for violators. The consequence was inevitable. Privateers stopped running the blockades and the supply of grain dried up. Consumers had no incentive to economize. The citizens ran out of all their provisions after six months of the siege and the Antwerpers starved. They surrendered and were quickly annexed.
Let's consider some of the principles that explain the causes of shortages and surpluses and the role of speculators.

When a harvest is too small to satisfy consumption at its normal rate, speculators come in, hoping to profit from the scarcity by buying. Their purchases raise the price, thereby checking consumption so that the smaller supply will last longer. Producers encouraged by the high price further lessen the shortage by growing or importing to reduce the shortage. On the other side, when the price is higher than the speculators think the facts warrant, they sell. This reduces prices, encouraging consumption and exports and helping to reduce the surplus.

Of course, speculators aren't always correct. When they are wrong, their actions contribute to shortages or gluts. Manias such as the Tulipmania, the South Sea Bubble, the Mississippi Bubble, gold panics, stock market crashes, and violent swings in the value of the dollar are frequently cited as examples of occasions when speculators contributed to instability and imbalance. But who could do the job better?

Bureaucrats have little incentive to improve, invest or innovate. When speculators are wrong, however, they are punished severely for their mistakes by losses of their own money. If left unchecked, the tendencies of our modern kings (read: government – emphasis added) to interfere with the natural working of the marketplace would lead to destruction. But speculators, searching for profit, send signals to producers and consumers as to the forces of destruction and good.

Traders sent such a signal on October 19, 1987, when they dropped the wealth of the non-Japanese-speaking world by 10% in one day when a modern-day king tried to interfere with the natural order by driving the dollar down one last 5% or so.

Perhaps the most positive impact of our current-day speculators is to check at inception governmental activities that would have an inflationary impact. Governments are prone to spend more money on their activities than they take in through taxes. The consequence often has been substantial inflation, followed by war, revolution and destruction of civilization. Nowadays, however, bond traders are so alert to the long-term consequences of such activities that they immediately send debt yields up significantly at the first sign of inflation.

The increased yields have such a negative and immediate impact on government revenue, business activity, and consumer spending that governments have all but given up trying to sneak increased spending past the market. As a result, the rate of inflation slowed markedly throughout the Western world during the 1980s. At the end of last year the long-term yield on a 30-year U.S. Treasury bond was 8.8% vs. 14.4% on the day after President Reagan was first elected. The great era of prosperity that has accompanied this reduced inflation adds a feather to the speculator's cap.

Granted, speculators are not angels; many are motivated by gambling and greed, and when given the chance will take advantage of the public as much as the next person.
What is the net effect of such evilness? Consider the purchase of one Treasury bond futures contract, the most actively traded futures contract. This is where the U.S. Attorney apparently focused his investigation after the undercover agents suffered huge losses for the government's account in stock market futures during the October 1987 crash.

To buy the equivalent of $100,000 in bonds, an average customer might pay $17.50 in commission (half of a typical $35 commission for one contract's purchase and sale) and $31.25 (one "tick"), the usual spread between the bid price and the ask price. This adds up to a $48.75 transaction cost for each $100,000 purchase.

Compare this with the "gentlemanly" New York Stock Exchange, where market-making speculators have a monopoly on trading in individual stocks. To purchase $100,000 of IBM stock (about 800 shares), the most actively traded Big Board issue, an average customer might pay 40 cents a share in commission costs and a 25-cent-a-share bid-ask spread. This $520 transaction cost is more than 10 times the cost to trade the same dollar amount of futures contracts.

Much of the suspected wrongdoing in Chicago apparently involved unscrupulous futures brokers who misreported customer transactions or gave customers unfavorable prices. But even if a bond-futures broker, for example, stole an additional $31.25 tick on every customer order, the liquidity of the market would still be far greater than that of the less-competitive Big Board. The customer would still be paying only one-sixth of the cost of the same trade in IBM stock.

This example serves not to exonerate crooked futures brokers, but to demonstrate the efficiency of a competitive market. Despite the overwhelming evidence that the speculator gets the job done, governments have attempted to bypass speculators in the name of a higher good.

The intellectual raises his eyebrows at the economic and historical analysis and contemptuously says, "Man cannot live by bread alone." To this I respond that without us, there would be no bread.

I am proud to be a speculator. I am proud that my humble attempts to predict Tuesday's prices on Monday are an indispensable component of our society. By buying low and selling high, I create harmony and freedom.

Mr. Niederhoffer is chairman of NCZ Commodities. This article appeared in the February 10, 1989, issue of The Wall Street Journal. Dow Jones and Co., Inc., 1989.

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Just Speculating
Investor's Business Daily
June 23, 2008

Energy: Democrats, in their never-ending search for scapegoats, have had a go at oil company CEOs, industry profits and now oil "speculators." They've looked everywhere but where they should — in the mirror.

The congressional hearings that kicked off Monday to look into speculative behavior in the markets produced all the usual finger-pointing about the doubling in oil prices over the past year to nearly $137 a barrel.

Meanwhile, Barack Obama, seeking to catch a political wave he can ride all the way to the presidency, has announced he'll "crack down" on oil speculation by imposing new limits and regulations on oil traders in the futures markets.

But as emotionally satisfying as going after speculators sounds, this will only make our current oil problem much worse.

Its true there's speculation in the oil market. But then again, there's speculation in virtually every exchange-traded good — from oil and gold to corn and pork bellies. This isn't just acceptable, it's healthy.

Speculators aren't evil. They ensure a liquid market for the commodities we need most. They make money by buying low, when the product is in low demand, and selling high, when demand has grown.

It has been pretty easy for them to make money recently, because speculation in oil has become a one-way bet.

Global oil demand has been growing by about a million barrels a day each year — thanks to surging use in fast-growing China, India, the Middle East and parts of Eastern Europe. Supply hasn't kept pace. In fact, it's falling at key suppliers including Mexico, Venezuela, Nigeria and Russia. So the price rises.

The logical answer to any question about speculation in a market is: What are you doing to boost supply? In the case of Congress and the solution offered by Obama, the answer is nothing.

They would punish people who do economically useful work, but wouldn't add a drop to our oil supply. If they really wanted to break the back of speculation, they should signal that they intend to use every means at their disposal to bring energy markets back in line.

High prices already have curbed demand here in the U.S., the latest data show. What's left is to drill for the literally hundreds of billions of barrels of oil we have here in this country locked up offshore, in Alaska and in vast shale-oil reserves.

Instead, the Democrat-led Congress has pursued foolish energy policies that lead inevitably to higher prices, less supply and declining standards of living for all Americans.

As for speculation, one tell-tale sign of market manipulation is a buildup of inventories kept off the market to keep prices high. That is, as the price runs up, the speculators pull supply off the market.

Is that happening? No. Oil inventories, in the most recent data, are down year over year. No one's hoarding oil.

Claims of surging speculation likewise fall apart on closer examination. It's true that speculative positions in oil have jumped from 37% of all oil traded in 2000 to 70% now. But much of that trading involves commercial hedging and risk-management — not speculation by people out to make a killing.

As the Commodity Futures Trading Commission notes: "There are almost as many short speculative positions as there are long positions." In other words, speculators are betting as much that prices will drop as they will rise.

In short, there's no real evidence that speculators are driving energy prices up. But there's plenty of evidence that Congress' refusal to permit drilling is a big factor keeping supplies down.

By INVESTOR'S BUSINESS DAILY
June 23, 2008

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Posted July 1, 2008 10:18 AM
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