speculation?

something we were discussing on e-chat yesterday. this is from an article by Michael Pento and a view i hold near and dear to my heart! "What they want us to believe is that it was greedy speculators that drove oil to a record high of $147 per barrel last summer. Not that the move had anything to do with the intrinsic supply/demand metric or the fall in the U.S. dollar. I wonder if they also blame speculators for the fall in oil from the $147 in July 2008 to $33 a barrel in December 2008.

The truth is that at the time oil reached its all time high, the explosion in money growth from the commercial and shadow banking system drove M3 up 16% YOY in July 2008, which concurrently sent the US dollar to an all time record low of just above 70 on the Dollar Index. In addition, there was the synchronized boom in global GDP in 2007 that put pressure on oil supplies into 2008.

But by the end of 2008 the dollar soared to actually close the year up 7%. The collapse of the shadow banking system caused a decline in the rate of money growth and global GDP rates came crashing down. Of course none of this is viewed by government as the reason why oil traded down to $33 a barrel by the end of the year. All that is sought is to use the volatility in commodity prices as an excuse to impose more regulation on the private sector. What they ignore is the fact that speculators help increase the liquidity of markets and are essential for their proper function.

As long as failure is allowed to occur, the free market is effective. It is only when government interferes with the cathartic process of creative destruction that the system collapses. Unfortunately, what we see today is the exact opposite environment being promoted, with a huge increase of meddling into the private sector by government. Instead of blaming the market our government should be working to supply a level playing field and provide maximum incentives for the private sector to flourish. Until we re-embrace the idea that markets are the solution not the problem, look for continued erosion in our economy and our freedoms."