...Assume for sake of argument that speculative activity in a commodity derivatives market has distorted the price of the commodity; convergence implies that if nearby futures prices are indeed distorted, physical prices have to be distorted too. Millions–and in some cases billions–of individual consumers, and myriad producers, face these prices. If these producers and consumers are not playing the same learning game that is going on in the futures market, the price distortion will affect their production and consumption decisions. All else equal, if speculators cause the price to be too high, consumption will be depressed, and production will increased. This will lead to an accumulation of inventories. If the price distortion is large, the inventory accumulation is likely to be large.
You know, Tim, this is all well and good in theory. However, in practice, its a very painful experience for people.....esp. those at the margins. American capitalism is coming up short in a number of arenas......one of them being the so called free markets. Its time to make some significant changes so the average person doesn't go through hell every time a hedge fund gets a margin call. |
