Power And Dollar

Combating Oil Prices? Italians Got It Right

Everyone has been blaming speculators as the source of oil price increase.  No one has a clue what to do with it yet.  CNN’s news story contributes the fall of prices on dollar increases, among others, while saying these factors are all short term.  If speculation is the reason, then Italians got it right this time.  And Italians got a solution that can last for more than a few days. 


Most politicians blame speculation as the greatest contributing source to increase in oil prices.  To combat this price increase, environmental groups point out that this is time for renewable energy while politicians contemplate tax rebate.  This is nothing new.  The new part is these argument get media attention, i.e. oil price increase is strengthening the cause of environmental groups.  To combat this price increase, Italian finance minister Giulio Tremonti proposed to increase the margin requirement for futures trading.  By increasing the margin, the amount of money required to speculate the same volume of commodity increases as well.  This suppresses the quantity of speculative trades.  Therefore, the oil prices will go down, if indeed speculation trading is the cause of high oil prices.  This is a very effective way to combat oil prices and working against the interests of the environmental groups because a lower oil price diminishes the incentives of renewable energy.  No money can buy this much media coverage for the environmental groups.  No money can buy (or political donation) this much air time from the politicians, even if they were committed to the cause.  On the issue of renewable energy, speculation trading is an important ally of environmental groups.  


The pro is great.  What about the con?


Increase the margin requirement makes money more expensive.  This will exacerbate the credit crunch.  A lot of these hedge funds and speculators are pension funds and mutal funds.  Making speculation expensive is to depress the returns on pension plans.  Who suffers?  Pensioners suffer the most. 


The other con is that this is still short term.  A solution is still not on the table.  This is a buy-time solution.


Every crisis is an opportunity to stay ahead of competitors.  Japan is trying to stretch this technology gap against America.  G8 is, like any other high publicized event, an excellent opportunity to promote products.  Japan is doing exactly that to promote their zero emission cars and buses.  Will this energy crisis get America to some action?  Both McCain and Obama are still thinking about what to do with the tax money.  This is so 1980’s: supply side economics.  Commercializable solution comes when there is sufficient demand for a product.  This high price is helping the demand for the green collar jobs Obama is talking about, not refunding the consumers.  


The possibility that green collar jobs may be years away is the source of talks about nuclear energy cooperation.  While it is true that one disaster event is too many, nuclear technology is available (versus renewable energy), operational and the cost being predictable and controllable.  Environmental groups focus should not be why nuclear energy is bad.  Environmetal groups focus on making the solution works: what will make the renewable energy technology commercializable and how to create those conditions.  If it is about the game rules of the market set-up (as in the case of margin requirement), then this is the prime to mobilize the organizational infrastructure, since it is election time.  



July 8, 2008 - Posted by | activism, advocacy, Barack Obama, Current Events, 石油, Democrats, Election 2008, John McCain, mccain, obama, opinion, politics, Republican, wordpress-political-blogs

1 Comment »

  1. Interestingly enough, Obama’s website doesn’t even state the high oil prices as an issue. His only concern is The Environment.

    Who cares about the environment when I’m paying $4.50 for a damn gallon!!


    Comment by Steve | July 8, 2008 | Reply

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