In another sign that we’re in a new age of more aggressive regulation, it looks like the CFTC is going to crack down on speculation in futures contracts in oil and other energy commodities. And this time, there probably won’t be a coalition of financial heavies to stop it from expanding its power as there was back in 2000, when the CFTC tried to regulate credit derivatives.
But before we rush headlong into this brave new regulatory, it’s worth considering a few of the warning signs. In the first place, speculation in commodities futures contracts can be a good way to hedge against near-term inflation and currency depreciation. So despite declining demand for oil, the prices for energy commodities might increase because of their value as a kind of currency alternative. Once you have this in mind, government’s desire to restrict trading energy commodities looks like a type of price control aimed at masking the effects of an inflationary monetary policy.
More importantly, it’s worth asking which interest group will make money from the new regulations. Typically, regulations primarily enrich well-organised interest groups, with broader benefits to the public occassionally leaking out as a cost of doing political business. So whenever you hear about a new regulation, the first question should be: who benefits? Reporters, however, are notoriously bad at understanding this question, and typically fall for the cover story of public benefits.
Business Insider Emails & Alerts
Site highlights each day to your inbox.