Recently Sen. Bernie Sanders (I-Vermont) spearheaded a letter-signing campaign whose signatories include 68 Members of Congress. The impetus for the good Senator’s efforts is a report produced by the St. Louis Federal Reserve Bank that, after five years of study, suggest that 15% of the increase in the price of gasoline is due to “excessive speculation.”
As a result of this extensive study, Sen. Sanders is pushing for the CFTC, the federal agency that oversees (one could argue – overlooks) commodity trading to reduce the limit of the number of gasoline contracts that any one individual or institution could hold in order to curb this excess. Sen. Sanders wants that agency to move faster than their time schedule in evaluating this (they planned on a one year study to accumulate data) – but that is not fast enough for the senator from Vermont.
The CFTC has shown itself to be rather ineffective in curbing “speculation.” Take the case of MF Global (headed by former NJ Governor and Senator, Jon Corzine). Here’s a case of a mere $1.6 Trillion missing-in-action which has still gone undiscovered since MF Global mentioned they had a “shortfall” on October 30, 2011. Amazingly, no one has yet to be charged in this massive fraud. Compare that with the swiftness the way the fraudsters in Enron were charged. Some of you who are cynical would perhaps allege that CFTC Chairman Brad Chilton, a Democrat is offering preferential treatment to one of the former leading lights in his party – but I dismiss that as mere conspiracy theory combined with a smattering of political name-calling.
As you may be aware, the Federal Reserve does some of the most profound and excellent research in the world of economics. You may also be aware that it has a dual-mandate – to set monetary policies to promote “full employment” – (currently in excess of 8%) and to reign in inflation. (Those of you who purchase groceries or gasoline which have respectively increased by 25% – 30% and 35% – 40% during the last year may decide how good a job they are doing at that).
Of course one of the ways that government reports these inflationary pressures is to report them ex-food and energy. By those measures the Fed is doing a good job – so much so that our elderly citizens received a 3.6% increase in their Social Security benefits this year – the first increase in three years. (Interestingly, all Federal employees received an annual cost of living pay increase in each of the three years in which Social Security recipients were over-looked).
But back to Sen. Sanders’ letter. Let’s assume that the Fed got it exactly right and that 15% of the price increase is due to excessive speculation. Okay, by my math that leaves 85% of the price increase due to other factors. Wouldn’t it be more productive to focus our attention to the overwhelming majority of the cause of the problem rather than addressing the periphery?
In the 1980’s with the oil embargo we saw long lines at the gas pumps. There were days when you could pump gas (if the station had any) based on whether your license plate ended in an odd or even number. There was a true shortage of imported oil and consequently of gasoline. So the Congress did something intelligent (did I actually say that?)
They reduced the speed limit on federal highways to 55 mph. The estimate was that this reduced gas consumption by over thirty percent – twice the amount that “speculation” accounts for under the St. Louis Fed study. I have yet to hear either Sen. Sanders or anyone else in Congress or the White House offer that simple solution in today’s economic climate. Why?
But even assuming that implementation and assuming further that the CFTC does enact new rules regulating gasoline “position limits” which actually save us fifteen percent of the impetus in increasing gasoline prices – that still leaves us with 55% of the problem unaccounted for. What could be the cause of that majority remainders? Simple. Lack of a cohesive and well-thought out and defined energy policy.
We have talked about formulating a comprehensive energy policy for twenty years. Co-incidentally, Sen. Sanders has served that amount of time in Congress currently as a senator and previously as congressman. I have done my best to try to review the legislation which Sen. Sanders has introduced during his twenty years of service and have yet to find an energy conservation bill which was authored by the gentleman from Vermont.
Although we have a superfluity of natural gas we are barely utilizing it and CNG is at historic lows in prices. Switching our utilization of fossil fuel energy to natural gas could significantly reduce our dependence on foreign oil and benefit consumers. But other than T. Boone Pickens – a man who has spent his whole life in the energy business – no one is talking about this untapped resource.
It would be too simplistic to believe that Sen. Sanders’ motivation in finally making some waves over “over-speculation” is motivated by his making points with the voters of Vermont as he seeks re-election on November 6th. But if I were a voter in the “Green Mountain State” I would be asking him for his vision of an energy policy for the country. In fact, that’s an excellent question to ask all our representatives and senators. Otherwise, their output is “just more gas.”