OIL SPECULATORS

Published in El Nuevo Herald on April 20, 2012

In the U.S., in 2003, barrels of oil were traded at $ 30, in July 2008 that price was $ 147 and gasoline was supplied, as today, to a national average of about $ 4 a gallon. There can be many causes of the rising cost of fuel is, known, for example, that wars in the Persian Gulf have decreased production in countries such as Iraq, Kuwait and Libya. It is also said that members of the Organization of Petroleum Exporting Countries (OPEC) did not want to over-exploit the oil fields and therefore have limited extraction. Two huge countries like China and India have been increasing their consumption. From a purely economic standpoint, this is a problem of supply and demand: if the supply decreases and demand increases, oil price increases. However, there are examples showing that the presence of speculators in oil negotiations is primarily responsible for the increase in the price of gasoline in the United States.

In a congressional hearing in June 2008, several financial experts testified before the House Energy and Commerce Committee that "eliminating excessive speculation in oil futures market, could reduce the price of gasoline by 50%."

That same month, the House of Representatives passed a bill called the Energy Markets Emergency Act of 2008 whereby the Mercantile Futures Commission "would have the required authority to order the immediate brake to excessive speculation, price distortion, sudden or unreasonable fluctuations in the same or any other illegal activity to cause market disruption, preventing this reflect the true balance between supply and demand. "

On July 25, 2008, the Republicans blocked the bill in the Senate, 60 votes were needed and only obtained 50 with 43 votes against. Republican senators argued then that it should legislate to increase oil output by allowing more drilling off the coast, as well as a full development in the vast territories on the West Coast oil.

Despite the continued reports of excessive speculation in energy markets, Futures Trade Commission (CFTC) refused to take any action, for example, in the quarter July to September 2008, three major investment banks with a presence in Wall Street, obtained a profit of $ 35.000 million on oil futures contracts. With a purely speculative activity like this, you get a brutal gain in three months. The main problem is the vendors and / or operators of funds to future buyers of this market. It may be that sometimes sellers are buyers and vice versa, that is, it's like to charge and be the change yourself. This lends itself to many interpretations.

The activities in the oil futures markets are many and complex. Normally, there are two types of investors: those who really want to make sure that the purchase price does not vary too much (these are mainly refineries), the others are speculators, who typically are banks and stockbrokers.

These hedge funds accepting initial deposit work known as margin. For example, the investor wants to buy $ 20 million in crude and deposits a million in cash. If low, it is deducted from the million. If the price raises, it is added to the million . In other words, the investor freeze the price. Wins when increases, loses if decreases.

For 2009 the oil futures market traded 1000 million barrels a day, but world oil production was only 85 million, which means that over 90% were speculators who renegotiated the barrels.

Since the actual cost of extracting a barrel is on average $ 11, priced at $ 100 or more is a real speculative abuse.

Although in July 2010, it was adopted a new regulation, (The Dodd-Frank Wall Street Reform Act) requiring that all directors in the futures market with at least $ 150 million capital are federally registered, in reality has happened to most of the said directors, they have declared only $ 100 million capital. In this way they will be only under the supervision of that state and not under the federal law.

The solution is to ban the involvement of speculators in futures markets. The other solution is unlikely because we live in a free market economy; that oil is not quoted on any market on U.S. or a single federal agency is responsible for setting the selling price to refineries. Thus, the price of gasoline will represent its real value.

Benjamin F. DeYurre

Economist and Journalist

REPUBLICAN ECONOMIC OFFER

Published in El Nuevo Herald on April 04, 2012

Barring a phenomenon, between the two Republican, Mitt Romney and Rick Santorum, is the candidate that will challenge President Obama in the upcoming elections. Each has its platform in which the economy plays a role. Then, I will outline what are their main economic proposals and how they compare with the deals of the Obama Administration.

• Mitt Romney

Increase the federal budget to reach $ 19.5 billion. Considers that citizens have lost about $ 11 trillion in net worth. This means that each year Americans spend $ 400 billion less. Even with this consideration, Romney opposed the stimulus plan Obama signed $ 787 billion in February 2009 and known as American Recovery and Reinvestment Act . In other words, the candidate seeks to increase public spending, but rejects President Obama wants to increase it.

Concerning the real estate market, Romney is in favor of not intervening in foreclosure processes, letting them run their course and hit bottom, then allow investors to buy these properties, repair, and then renting and re-enter the market . This differs radically from the recent agreement by the Department of Justice in the Obama Administration with major banks holding mortgages in the country, through which these banks modify loans by $ 25 billion to those homeowners whose debt is greater than the current value of their homes . This is preventing a massive foreclosure that was the next to appear.

While Republicans opposed the passage of a law criminalizing the importation of Chinese goods if China came to see that artificially manipulating its currency to encourage exports, Romney has said that to eliminate the unequal trade between the U.S. and China, is able to resist this manipulation of currency and raise tariffs on Chinese imports. However, Romney was against imposing sanctions on China for its trade abuses in 2011-2012.

Romney agrees not to raise taxes. As governor of Massachusetts, Romney supported the second round of tax cuts proposed and approved by President George W. Bush. This position is diametrically opposed to the offer proposed by Democrats to raise taxes on the wealthiest class, which constitutes 2% of the population but accounts for over 90% of businesses in general.

• Rick Santorum

Intelligently, more blame former President Bush to President Obama for the current crisis. According to Santorum, "Bush set the precedent and this was a bad precedent."

Santorum is in favor of reducing government spending and simplify the tax code, but proposes to completely eliminate corporate taxes for manufacturers who repatriate their profits to the U.S. or other countries. Of course, it would be even more important for the U.S. if these manufacturers were located in U.S. territory and not in China or other countries. In this regard the administration of President Obama has said that those companies that manufacture on American soil will be entitled to take-offs and tax exemptions.

Santorum also said in the Wall Street Journal that "to restore U.S. Competitiveness, all other corporate taxes should be lowered to half and set at a flat rate of 17.5%." During a recent televised speech tycoon Warren Buffet on CNBC, it declared, "is a myth that U.S. corporate taxes are high and are strangling American competitiveness." By contrast, according to Buffett, the corporate tax rate in the U.S. is among the lowest in the industrialized countries, reaching in 2011 an actual cash value of only 12%. Indeed, Buffett deepens stating that U.S. corporate profits have been the highest in the last 50 years since they were 10.1% of gross domestic product, which refers to the value of goods and services produced in the country officially.

Many may agree with the conservative, for example, against abortion and gay marriage, and vice versa. This means there may be conservative Democrats and liberal Republicans. However, the focus in the coming presidential elections will be the economy. As are the times, with unemployment soaring by shifting technological and continuous creation of American jobs to China and other countries, imposing a solution, although not to everyone's taste, is necessary. In this sense, the Republican economic offer does not seem an appropriate response.

Sometimes the regulations are necessary to heading ships. The air and sea traffic has its own regulations, if carried a heavy load slows the trip. If you spend a lot during the journey passengers would be unhappy. However, the most important thing is that the ship will not sink or fall off the plane.

BENJAMIN F. DeYURRE

Economist and journalist.