Friday, November 05, 2010

President Sarkozy says we need commodity price regulation because of speculators

In his speech at the 8th Europe-Asia Summit, French President Nicolas Sarkozy is reported to have drawn attention to "the terrifying volatility of commodity prices. In one year, oil has risen from $40 to $140... There have only to be catastrophic fires in our Russian friends’ country and the cereal price rises 65% in two months".

He went on to ask "Who can accept that?"

And he argued that, as governments have made efforts to regulate derivatives in the financial arena, so we must regulate commodity prices: "is the existence of commodity derivatives acceptable ...? I’m in favour of the market, but there must be no lies: the market doesn’t set commodity prices today, it’s the speculators. We must regulate".

Well, as the last option, regulation may be inevitable. But if the French President really believes in markets, he should first use financial mechanisms to try to limit speculation.

Speculation can be constrained by limiting the amount of money available for speculation (which was essentially the strategy of the Glass-Steagall Act), by limiting the amount of leverage allowed (e.g. by substantially increasing "skin in the game"), by disproportionately large taxation of speculative trading , and so on. Sphere: Related Content

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