George Graham

It’s Time to Rein in Commodities Trading

It is far too complicated to prove in a blog, but, trust me, the underlying cause of the world’s current economic crisis lies in the commodities trading system. (Please don’t tell American Homeland Securities Czar Michael Chertoff that I said this, or I will surely be whisked away to Guantanamo and water-boarded.)

To criticize the underlying structure of the capitalist world’s financial system is heresy of the worst kind in the United States, and you won’t find much commentary of that kind on the Web. Apparently, the only people sticking their neck out on this topic live in India, people like Sonia Gandhi (photo below), who is described as a “left-wing” politician. Her “left-wing” comments include the statement that “forward trading, particularly in wheat, has had an adverse impact” in her country. She has even gone so far as to call for “a more effective regulatory framework to deal with speculation.”sonia-gandhi.jpg

Indian blogger Jaspal Singh Sidhu had this recent comment: “Stock marketing and futures trading are the main instruments of speculation in the capitalist economy in which the capital is invested and reinvested with a sole purpose of making a profit. Thus the capital grows, multiplies and gets concentrated in a few hands. In such an economic set-up, the futures trading wields a tight grip over the real economy, influences the movement of spot prices. But, it also happens that the futures trade starts moving in an absurdly divergent manner, showing no connection with the spot market. Thus, it becomes sheer gambling for a profit.”

I suppose Jaspal Singh Sidhu would be described as a “left winger” here in the good ol’ USA.

(By that definition, you have to list medieval philosopher Thomas Aquinas as a “left winger” because he argued that it was a moral obligation of businesses to sell goods at a just price.)

So, I am going to go way out on the left wing and blame “futures” trading for the world’s economic woes.

I’ve said it before, and I’ll say it again (especially now that the hotshots in Washington seem to be agreeing with me): The current spike in oil prices is due more to futures trading than to the increase in demand.

Here’s a simplistic explanation of the incredibly complex commodities trading system.

In various world centers there are institutions called commodities exchanges, where basic products like wheat, barley, sugar, corn, cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc. are traded. This has been going on for several centuries, and it started as a way of providing farmers and produce buyers with a central marketplace.

These exchanges also provide for buying and selling “derivatives.” That’s just a fancy name for a contract to buy something. You don’t actually buy the wheat or oil, or whatever, you buy the right to buy the wheat, oil, or whatever at a certain price on a certain date in the future. You might argue that this provides stability in the marketplace: A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and know what price he will be paid; a breakfast cereal producer can buy the contract in advance and guarantee the price will not go up. This protects the farmer from price declines and the buyer from price increases.

But it also provides an arena for speculators to go hog wild. Indeed, the system has become so perverted that you can gamble on interest rates, ocean freight contracts and a whole range of other “derivatives.” And these contracts can include spot prices, forwards, futures and options on futures. (When I try to put the meaning of “forwards” into words, my head hurts. It’s a convoluted way of betting that the price in a futures contract will go up or down, I think. An “option” is the right to buy something, so in this context, an option would be the right to buy the right to buy something. You can probably figure out what a spot price is as wll as I can.)

This kind of gambling is great fun for rich people and often makes them even richer. In recent years the richest of the rich have formed “hedge funds,” which pool their vast resources to take advantage of the market. But it’s a matter of life and death to the rest of us.

It is the commodities system that determines how much we pay for a loaf of bread, a jug of milk or a gallon of gas. And I think that’s far too serious for fun and games. If that makes me a “left-winger,” I guess I’ll just have to live with the designation. And if Mr. Chertoff adds me to his “watch list,” I’ll have to live with that, too.

About the author


I am a Jamaican-born writer who has lived and worked in Canada and the United States. I live in Lakeland, Florida with my wife, Sandra, our three cats and two dogs. I like to play golf and enjoy our garden, even though it's a lot of work. Since retiring from newspaper reporting I've written a few books. I also write a monthly column for