Commodities traders caused starvation and malnutrition for 200 million people

[littlebabyjesus]

But social insurance doesn't solve the problem, it just externalises the losses.

What do you mean by that?

 

[Wolveryeti]

The market is a far stronger force than any individual or company ( as cocoa guy found out ) prices will settle at their natural level given a reasonable period of time .

How would you suggest we regulate commodity prices ?

It's not really about regulating commodity prices as you frame it.

The problem is the investment banks, hedge funds and other speculators that create the volatility that futures are meant to hedge against. Cut off their supply of cheap funding, and much of the problem disappears. Less volatility, less need to buy futures to hedge against it.

That's why we need higher capital reserve requirements and separation of retail and investment banking.

 

[littlebabyjesus]

Can I ask a potentially stupid question?

If futures is a 'zero-sum game', why does anyone take part in it?

Also, that FT article states that the stock market isn't a zero-sum game, that the buying and selling of shares creates wealth. How?

 

[free spirit]

But social insurance doesn't solve the problem, it just externalises the losses.

I guess I see removing the unfair advantage as the battle, and you want to stop the game. I can't say which is more achievable or desirable, but I'd bet on me

the unfair advantage being access to vast amounts of money, education, power and influence vs scratching a living with no money, little education, no power, no influence?

I'm right there with you on that, just I'd prefer it if the people at the bottom of that equation didn't die of starvation / have to sacrifice their kids education and future to feed the family in the meantime.

If you have an overnight method of rebalancing the equation then please do tell, if not then we need the state (states) to step in to prevent casino capitalism from further destroying the lives of the worlds poorest (and the rest of our lives to a lesser extent). Food should not be a commodity to be used for purely speculative purposes.

 

[butchersapron]

Can I ask a potentially stupid question?

If futures is a 'zero-sum game', why does anyone take part in it?

Also, that FT article states that the stock market isn't a zero-sum game, that the buying and selling of shares creates wealth. How?

By facilitating flows of capital based on comparative advantage i'd guess.

 

[TruXta]

Can I ask a potentially stupid question?

If futures is a 'zero-sum game', why does anyone take part in it?

Also, that FT article states that the stock market isn't a zero-sum game, that the buying and selling of shares creates wealth. How?

My thinking (and I'm happy to be corrected) is that futures is only zero-sum in the abstract. As BA says until you reach "The Future" it's all about comparative advantage. That hypothetical end-state is never reached tho, at least not on a systemic level.

 

[Yuwipi Woman]

Some of this stems from agricultural policies that put a premium on cash crops at the expense of subsistence crops. I remember in the 70s, Ag schools in the US taking students on tour in South America to show them how to grow large tracts of corn year after year, by using commercial fertilizers and pesticides. Most of the results have been disastrous on the long term for both the farmers and the environment.

 

[hammerntongues]

I've not cherry picked anything. You've argued that there is a greed component of commodity trading that effects prices. Haven't you?

there is a greed component that effects prices yes but it is a relative short term effect , it is not the primary force , the driving factor pure and simple for an upward move is sustained demand . The move higher that we have seen for example in both mineral oil and feedgrain is as a result of increased demand from China and India . We have seen record crops outmatched by even higher demand , this has nothing to do with speculation , what speculation has done is bring about the move at faster rate than it would have done if it had occurred naturally , this is counter-balanced by the same faster than natural move down when that happens.

You cant eat foreign currency but it behaves in exactly the same way .

 

[hammerntongues]

No one eats property or cabbage patch dolls. Indeed, one can survive more than adequately without cabbage patch dolls and property.

you are quite right but the dynamics are the same .

 

[nino_savatte]

you are quite right but the dynamics are the same .

In what sense?

 

[free spirit]

you are quite right but the dynamics are the same .

the dynamics probably are the same, but the point about nobody eating cabbage patch dolls is the relevant point.

nobody gives a toss really if someone wants to attempt to artificially inflate the price of cabbage patch dolls as nobody dies as a result. Artificially force up the price of basic foodstuffs though and people do die, lots of them, and many others are dragged into more abject poverty as a direct result.

 

[hammerntongues]

In what sense?

In as much that the more people that want to buy something be it wheat , oil , a house , the usd dollar , an olympics ticket or a g of coke the higher the price will go .

the drugs trade is built around greed and supply and demand , it operates with farmers ,workers , producers , shippers , dealers and users , each have there influence over price but basically if there is excess supply the price will go down , a shortage it will go up .

 

[butchersapron]

there is a greed component that effects prices yes but it is a relative short term effect , it is not the primary force , the driving factor pure and simple for an upward move is sustained demand . The move higher that we have seen for example in both mineral oil and feedgrain is as a result of increased demand from China and India . We have seen record crops outmatched by even higher demand , this has nothing to do with speculation , what speculation has done is bring about the move at faster rate than it would have done if it had occurred naturally , this is counter-balanced by the same faster than natural move down when that happens.

You cant eat foreign currency but it behaves in exactly the same way .

I note the abundant use of nature in your post. I note also that you again say what the OP argues. The malevolent short term effects of this behavioiur is exactly what we're talking about - isn't it? Not what 'smart money' does.

 

[hammerntongues]

the dynamics probably are the same, but the point about nobody eating cabbage patch dolls is the relevant point.

nobody gives a toss really if someone wants to attempt to artificially inflate the price of cabbage patch dolls as nobody dies as a result. Artificially force up the price of basic foodstuffs though and people do die, lots of them, and many others are dragged into more abject poverty as a direct result.

It doesnt matter if care about it or not , my point was , even if badly made , was that its not artificially forced up .

 

[littlebabyjesus]

In as much that the more people that want to buy something be it wheat , oil , a house , the usd dollar , an olympics ticket or a g of coke the higher the price will go .

Now I really am confused. Isn't the whole point that money flowing into food futures from other 'investments' meant that more people did want to buy it, thus the price was forced up?

The essential point here seems like a simple one - if more people see food futures as a good investment, more money comes into the food futures system and the price goes up. It seems to me that this is the essential, simple point of Hari's analysis, and that it is this that needs to be rebuffed to show that he is wrong.

 

[hammerntongues]

I note the abundant use of nature in your post. I note also that you again say what the OP argues. The malevolent short term effects of this behavioiur is exactly what we're talking about - isn't it? Not what 'smart money' does.

I agree totally that there are short term prices hikes and falls that are totally speculator lead yes.

 

[littlebabyjesus]

I agree totally that there are short term prices hikes and falls that are totally speculator lead yes.

Ah, so you do agree, then. That's the whole point! Short-term price hikes in food kill people. The fact that the price then goes back down again is no use to you if you're dead.

 

[free spirit]

It doesnt matter if care about it or not , my point was , even if badly made , was that its not artificially forced up .

I agree totally that there are short term prices hikes and falls that are totally speculator lead yes.

if a price hike is totally speculator led, how is this not the same as a price being artificially forced up?

 

[Yuwipi Woman]

It doesnt matter if care about it or not , my point was , even if badly made , was that its not artificially forced up .

The thing you're missing though is the food isn't really sold in commodities markets. What's really being sold is contracts. Each additional step in the producer to consumer chain adds to the price. Letting institutional investors buy who have no interest in moving food along or even in taking delivery of the food in that chain artifically inflates the price. You can end that type of speculation buy requiring that someone bidding on a contract take delivery of the commodity. Increased demand in China and India is a factor, but it isn't the entire story.

 

[ymu]

Does anyone else on this thread find it not at all surprising that the people coming in with simplistic bullshit and half-understood arguments are those working in and around Big Finance?

You'd think they'd keep quiet out of sheer embarrassment at their inability to understand what the fuck was going on in their own industry. But they actually seem to think they have the credibility to comment now.

Extraordinarily deluded.

 

[Fruitloop]

The point about food vs cabbage-patch dolls is surely that nobody needs cabbage-patch dolls to survive.

 

[Blagsta]

It doesnt matter if care about it or not , my point was , even if badly made , was that its not artificially forced up .

What do you mean by "artificial" and "natural" in this context?

 

[hammerntongues]

if a price hike is totally speculator led, how is this not the same as a price being artificially forced up?

the speed at which the price moves is accelerated but my opinion is that it would have reached that price anyway but lets get this into perspective , under no circumstances do speculators always get it right , there seems to be the assumption that this is the case . In the majority of cases for every spec buyer there is a spec seller with the exact opposite opinion.

 

[littlebabyjesus]

the speed at which the price moves is accelerated but my opinion is that it would have reached that price anyway but lets get this into perspective , under no circumstances do speculators always get it right , there seems to be the assumption that this is the case . In the majority of cases for every spec buyer there is a spec seller with the exact opposite opinion.

Again, this is the whole point. Hence bubbles.

Your last sentence is not correct - speculators tend to act with a herd mentality. Studies have been conducted on this - one of the biggest influences on the behaviour of commodity traders is the behaviour of his or her immediate neighbour. Hence bubbles and crashes.

 

[hammerntongues]

What do you mean by "artificial" and "natural" in this context?

sorry I am trying to answer where I can , I will go back up my thoughts but to answer this one .

I know I have used those terms but its not that simple but for the purpose of this question i would say that

Artificial = speculative buying/selling

Natural = the supply demand between producer and consumer , encompassing some of those influences I have mentioned FX , weather , subsidies , tax incentives , population growth , wars , Oil prices have doubled so the cost to get foodtstuff from a to b has doubled too some of these are not natural of course but they fall within the bracket because they are outside the control , in most cases , of the speculators

 

[A Dashing Blade]

It's not really about regulating commodity prices as you frame it.

The problem is the investment banks, hedge funds and other speculators that create the volatility that futures are meant to hedge against. Cut off their supply of cheap funding, and much of the problem disappears. Less volatility, less need to buy futures to hedge against it.

That's why we need higher capital reserve requirements and separation of retail and investment banking.

Pretty much the most incisive post on this thread

Now I really am confused. Isn't the whole point that money flowing into food futures from other 'investments' meant that more people did want to buy it, thus the price was forced up?

The price of the future yes.

The thing you're missing though is the food isn't really sold in commodities markets. What's really being sold is contracts. Each additional step in the producer to consumer chain adds to the price.

The price of what? The future or the underlying? If the latter then what exactly do you think the mechanism is?

Does anyone else on this thread find it not at all surprising that the people coming in with simplistic bullshit and half-understood arguments are those working in and around Big Finance?

You really couldn't make this comment up!

. . . but lets get this into perspective , under no circumstances do speculators always get it right , there seems to be the assumption that this is the case . In the majority of cases for every spec buyer there is a spec seller with the exact opposite opinion.

The second most incisive post.

 

[A Dashing Blade]

Your last sentence is not correct

Yes it is. It is totally correct. For every buyer of a futures contract there is a seller. There has to be. There's no such concept of "total number of futures contracts allowed to exist", it can be any number between 0 and (of the order of) 1 million

 

[Blagsta]

sorry I am trying to answer where I can , I will go back up my thoughts but to answer this one .

I know I have used those terms but its not that simple but for the purpose of this question i would say that

Artificial = speculative buying/selling

Natural = the supply demand between producer and consumer , encompassing some of those influences I have mentioned FX , weather , subsidies , tax incentives , population growth , wars , Oil prices have doubled so the cost to get foodtstuff from a to b has doubled too some of these are not natural of course but they fall within the bracket because they are outside the control , in most cases , of the speculators

Seems like a weird distinction to me, given that speculation is very much a part of the system.

 

[butchersapron]

Whether they get it 'right' is neither here nor there.

Can blade say incisive without saying anything herself?

 

[littlebabyjesus]

Yes it is. It is totally correct. For every buyer of a futures contract there is a seller.

For every buyer of a house, there is a seller. That doesn't stop house price bubbles from occurring. What matters is the shared opinion of what the said futures contract is worth. The opinion of the overall state of the market, what you should invest in and what you shouldn't, is subject to herd mentality.