This morning on CNBC, the Wall Street news channel, D-Senator Chris Dodd and R-Senator Richard Shelby squared off about imposing a windfall gas tax on oil companies.

At one point about half way through the discussion, one of the interviewers posed a question to Chris Dodd about how a gas tax was going to bring down the price of gasoline asking if it would make more sense to go after speculators.

Rich people are all talking about it, they just aren’t talking to anyone else about it because all the extra money we’re paying for everything we need has to be going somewhere, which it is, right into their pockets. Of course the Democrats don’t like it when it comes to oil because the government only gets so much money per gallon of gasoline no matter how much a gallon it sells for and people are driving less so programs that really on gas tax money are hurting. But the price of gasoline is not the culprit.

The oil companies have an equation they’re required to use to set gasoline prices by based on the price of crude oil. If oil is down, they don’t make any money, or not much. But if the price is up, they make a windfall of profits. And the government is who designed this equation which prior to the last few years made it very hard for them to make money.

So who is doing this to us if not the oil companies? Is it OPEC? Well a lot of people, even Bush, would like to blame them. But the truth is they don’t set the price of oil, supply and demand does, or it’s supposed to. They can control it to some extent how much they pump out of the ground but that’s not the problem. There’s plenty of oil on the market, especially with the price so high that everyone is cutting back on using it. In fact I have read from some highly credible sources that there is more oil and gasoline on the market than there has even been before and we should be paying very little for it. If you want to know who’s pricing oil making the equation that decides how much we pay for gasoline to spin out of control, you have to look at how the price of oil is decided, which in order to understand that, you need a lesson in how commodities futures are traded.

Oil is a commodity, like corn, wheat, and metals, anything we have a guaranteed constant supply and demand for. And since the supply and demand is so great, in order to make markets easier to invest in, they have what’s called commodities futures trading. So as commodities are bought and sold in the millions of tons or barrels with investment in the industries that produce them in the billions and even trillions of dollars, profits can be hurt by slight shits in prices, which harms the effected industry, which hurts the consumer. So people intimately familiar with a particular commodity, those who grow the corn, pump the oil, or refine gasoline or ethanol, use future contracts to hedge against future profit losses or take advantage of what they know to make extra money, which usually only offsets what they lost when the market went the opposite direction of what they had thought.

So everyday, speculators from any particular industry are wagering on whether oil demand will increase or slow while balancing what they believe the landscape will look like in the future as it relates to how much oil prices will be on the market at any given time. If there is more oil than demand, the price will drop. If there’s less oil than what buyers need, the price goes up. Its simple basic supply and demand logic and it works if properly regulated so it doesn’t get corrupted.

Take for instance - If I have a store that sells corn on the cob for a set price where I  grow it in my backyard, in a place where there’s more people who want to buy corn on the cob than corn on the cob for sale, I can make a lot of money selling it because I have very little overhead producing it and can set my own price without competition. But if someone else sees a lot of money can be made supplying the town with corn so they grow enough to flood the market, then the price drops to a level that it’s no longer worth my time to grow my own corn and sell it.

But in the commodities market, assuming that I would have been watching everything related to corn around town, I would have seen what was coming. So to hedge my losses, I would have bought a short futures contract for corn. A short contract is where the buyer is betting the price of a commodity is going to drop. So what they do is buy corn at tomorrows prices to sell today. What they’re doing is gambling that the price will drop so they’re given tomorrows price to purchase it a lower price. Then they sell the corn at the going rate raking in a hefty profit.

But if they turn out to be wrong and the price goes up, they still have to pay tomorrows higher price so they lose money. So a short futures contract is not something engaged in by anyone who doesn’t know the market very well. Even then it’s traditionally hard to make money on them because so many factors that can cause the price of any commodity to go up or down at any given time.

Betting long on a futures contract is wagering the price will go up, which would be like if I happen to know that the farm that was growing the new source of corn in my town had a death in the family so the harvest wouldn’t be coming in,  or there was a blight that killed the crop while I happen to have grown a full backyard of corn so I would know I could run the price of corn back up to where it used to be. .

But if I had seen it coming when the price of corn was still cheap, I could have bought the corn in my back yard on Wall Street when it was cheap even though it had not been harvested, or even planted, and sold it for the higher price when there was not much of it left on the market because of the farmers crop didn’t come in. But I could have done it all today.

But if the price didn’t not go up, if there was a farm on the other side of town I didn’t know about that brought in a big harvest and flooded the market with corn anyway, I would have to pay the difference of the profits I didn’t make to who I had the futures contract with. But that’s not really how it works. I was just exercising your mind to help you better understand future contracts. Actually no corn or oil change hands and anyone can engage the market. But generally it’s too risky for anyone not part of producing or selling any prospective commodity. Really it is more like a casino with paperwork that pays off over time.

A futures contract is purchased and if the buyer wins, he picks up his money after the term of the contract has expired, that’s generally how it works. But see they don’t have to pay for the whole value of the commodity up front, just 5% and a service charges for drawing up the contract. This allows farmers or people involved at lower levels of the commodity producing or exploiting market to use future contracts to take advantage of what they know about it so they can offset their potential future loses like an insurance policy. So if they’ve invested their future in the price being high so they grew a lot of corn, they might hedge their investment in case they’re wrong by buying a short contract incase the price drops. But they don’t have to invest twice the amount they invested in growing the corn, just five- percent. That way if they’re right and corn prices are high, they lose a little money from buying the contract but can afford it because of all the money they made selling their corn. But if prices drop, they’re able to recoup some of their real world losses. So futures are generally used to oppose where the market will likely go which is the direction that producers are generally going to be heading.

The way the price of a commodity is decided is an odd one. On the market, commodities can sell for whatever anyone can get for them, the street value of the products themselves. That can be different everywhere, in a community, in a state, in a nation, throughout the world where prices can range from very high to very low on any given day. And it’s assumed the people who trade commodity futures know the market better than anyone else or they wouldn’t risk their money betting on which way the price will go.

So the price of oil for today is decided by what the difference is between how the lowest short futures contracts gambling the price will bust are stacking up next to what the highest long contracts are betting it will go up. So if the price of oil today is a 100 dollars a barrel while there’s a lot of speculation it will go to 150 a barrel with some thinking it will drop to 75, then the price of oil comes out to be somewhere around 125 a barrel. The equation used is more complex than that but basically that is how it works, they simply use the wagers of the experts on what the price will do to find the price in the middle and that is what the price is.

What’s going on today is not a reflection of what experts  are predicting the market will do with regard to their views of what supplies and demand will be in the future. In fact farmers are complaining they can no longer use the futures market to offset losses they might take if prices drop because the people now investing in the futures market are not people associated with the commodity being invested in but outsiders who have hundreds of billions of dollars from retirement and mutual finds, insurance companies with trillions of dollars to throw around, and then even the companies that sell the commodities themselves who see the prices have nowhere to go but up.

See what’s going on now is money that’s usually invested in the economy to make it fluid so there’s always cash flowing through it supporting new ideas and products competing for profits, that money is no longer being risked because our economy is failing, the dollar is weakening, and there’s not trust in our government and those who manage corporations. So in needing a place for money to go where it will turn a profit or just be safe from evaporating as its value disappears, investors have learned a neat little trick, that as long as enough futures contracts bet long insuring the price always goes up, then they can always beat the system because the price is decided by the balance between long and short futures contracts.

First it was oil, now it’s food, things we can’t do without that we have to buy no matter how much we’re charged for it, unless we have backyard full of corn we can make fuel out of and eat so we don’t have to go anywhere to get what we need. And anyone who is anyone in the financial markets knows that this is what’s driving the price of everything up. But they don’t talk about it publicly because they’re the ones making the money off betting our future away this way.

Like the other day on CNN, I saw a debate between McCain and Obama spokes people  over economic policy as it relates to high prices of food and gasoline. First they let the McCain spokesman talk about how the world is running out of oil and there’s greater demand for food because emerging economies from China and India have middle classes who can now afford to eat more food so it’s straining world food markets. But the truth is our futures markets are being used to rape the worlds economy causing the value of the dollar to sink below that of other currencies so they can easier afford to buy food, even our food, than we can.

The point is there’s plenty of food in the world, it’s just harder for us to buy because our currency is worth less while our new Wall Street investment strategy is causing everything to rise without regard to supply and demand but higher demands for profits even though those profits are worth less because what they’re doing is causing the value of the dollar to shrink. And although Obama already being a US senator makes him part of the problem because he hasn’t spoken out about what’s been being allowed to happen behind our backs that lead to our economy into the gutter in the first place, he has been using what’s happening on Wall Street as a political tool to make him look like the best hedge against McCain.

Of course McCain will help Wall Streeters squeeze every last dime out of your pocket that he can get while so it appears will Obama. But Obama will use the truth as talking points to try to win this election and has been doing so frequently. The point is, and not surprisingly, after the McCain spokesmen said what he had to say, CNN cut to a commercial and Obama’s guy never got a chance for a rebuttal. When the news resumed after the commercial, they moved on to another topic, end of story.

But really the biggest case in point that can be made that settles the score on whether it’s supply and demand that’s driving the markets or speculators, is what happened last Friday, which the story of  was sounded quite clearly throughout the nation with everyone talking about it all weekend. But the truth is that I don’t think anyone who would should have understood what happen saw it go by.

Some months back, Democrats who run the senate demanded that the CFTC, the Commodity Futures Trading Commission, look into what can be done about big investors using futures contracts to run the price of everything we need up so high our economy is in ruins. Yeah they did, I’m not lying. I know, you are thinking you would have heard about it if it were true. And they gave last Friday, June 6, 2008 as the date they wanted an answer from the CTFC about whether there was anything illegal going on that would allow for a way to bring the future market under control.

See traditionally if there’s a policy in place that secures investments as being legal, then it has to stay in place as long as there are investments in that direction. So even if the markets are being obviously gamed so that all out efforts out here as working class citizens are being undermined by a hand full of people whose jobs only consist of making money, there’s nothing that can be done about it. And the rules are that the futures market is not supposed to be used this way but there are loopholes to everything and so there is with futures trading.

Before Friday, there were a lot of investors not engaging in the unethical immoral practices that their colleagues were legally engaging in, who are by and large, so called conservatives who see the rule of law as all powerful, even when it allows them to leave our nation founded in freedom behind in ruins. But as soon as they saw the CFTC’s answer to the senate Friday afternoon, there was a bums rush for the floor of the futures trading index where hundreds of billions of dollars that was sitting around with nowhere to go were invested in commodities causing the price of oil to jump 11 dollar a barrel, and unprecedented price hike for a couple of hours of trading on a Friday, which for people on Wall Street meant oil finished the week strong, like gangbusters, like it was a good thing. I don’t think anyone can ever justify this happening as having anything to do with supply and demand like we’re being told is causing it.

This is how the prices of what we need the most is being decided, the new secret system that only the very wealthy know about, the new way that has replaced the old one, the way how much what we as actual hands on low paid producers of product and services for the economy pay for what we produce. In fact the way they’re working on these new and legal fundamentals of how to manage the economy in the future through our futures trading market, it appears feasible, in fact it is going on now, to say that it’s more profitable to price products out of our range to be able to buy them and dump them into the ocean rather than making them affordable. We as providers of the economy have become irrelevant to those that run it which means we work only to give them numbers to play with until they will finds out for themselves that the money they’re making is loosing its value as the value of the dollar sinks behind their scam. And if they don’t reign themselves in, because it appears the government doesn’t have the strength or will to, they’ll make trillions of dollars in profits that are worthless because the US dollar will not be able to buy anything.

So when we hit rock bottom, who gets everything after that? I guess the endgame trophy will be who gets to run around buying up everything left after it all collapses for dirt cheap when we have nothing left. It will be like it is with the housing market now. We build houses. We buy houses. But bankers got greedy and now the housing market is a mess. So what’s happening? - foreclosures as far as the eye can see into the depths of our crumbling economy where our homes are going back to the banks. But I don’t get it. They didn’t build the houses. They didn’t work to earn the money to buy them. They just get to keep them after they made the mistake that meant no one was living in them anymore. I think it should be the other way around.

The light at the end of the tunnel is that these are all good and hard earned lessons we need to learn. Our way of doing business has to change. The system is set up for us to win or lose, which was relevant for the past so many thousands of years when there hasn’t been enough to go around. But now there is more than enough but not enough money. There is enough money but the people who have it are hoarding it even though they have so much more of it than they could ever spend and don’t have a clue what to do with it or they wouldn’t be ruining the economy this way instead of leading it to some brilliant new vision of the future.  

The way the economy is set up now, someone could come up with a way to provide clean energy that’s free where instead of it being a big a boom for freedom, it would put so many people out of work that the streets would be littered with homeless people with all the clean energy they could dream of.

Sometimes I wonder if what is meant by the end of the world in the bible is not that the tyrants take over and everything is destroyed but that the game ends, that we have enough to go around so we can stop competing for who wins and loses the game of life and let some things be free, like home, and food, and energy, the basics of life. And it can be done. It would just take concession from the people intent on winning the human race, for them to stop running and just cross the finish line so the game can end. Then we can all go home. But they think life is a game, that it can never end. So maybe the end of the world will never arrive. Maybe the human race will toil only to live out eternity on a field of glory for conservative minded thinkers who trust only in the old ways of our forefathers, the kings of ancient times who built our economic system around a zero sum market with not enough to go around not knowing that one day it would be able to provide more that they could ever consume.

So now that we, the people who built this world, have given them more than they could ever imagine, they have to burn it to insure there are winners and losers in the game of life to validate why they work so hard to be the winners. It’s a sad commentary for them and for us, one that only God can sort out because apparently the people running the world believe what they’re doing is connected to a providence that he has provided for them to take advantage of, which is us. I guess I have to wonder what their plan B is if He doesn’t show up to tell them what was the mystery behind why we played this game for the past 5000 thousand years is. I expect if there was a God, one like the One they preach about, He would say we came all this way so we could live free. But apparently the people who believe in this game so much they feel they have to win it by beating me think that what God would say is that it was so they could win, so that they could be free, not me, that in order for them to win, I had to lose because if I didn’t, I would be able to have what they do.

So I guess my only real question is what these people who have never met me have against me and why they can’t be happy without ruining my life, nation, and world. But I don’t suppose they wouldn’t have much of an answer for that so I don’t suppose I will ever hear a reply other than I am just jealous over their success because of my failure.

And for you, I wonder why you didn’t know this story before you read it here. I don’t know who is more to blame for their ignorance, you for not knowing what they were doing to you so you could stop them or them because what they are doing is so stupid. And I wish I could just say I’m  washing my hands of all of you laying the blame on everyone but myself. But that wouldn’t save me from what you’re letting them do to me. So I write and I write, and then I write some more. I just hope one day you listen.             

By Bobby Fontaine - This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
June 10, 2008 

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