On Wed, 16 Feb 2011, the Pollin/Jayati transcript was quoted:
> POLLIN: When they move the futures market, that pushes the spot market
> up--the futures market is driving the spot market prices.
This is the crux, and I want to believe it -- it seems empirically true -- but I don't understand the causal chain.
There is one obvious chain: people see the future price is higher, so they don't sell today, but save to sell later. But if they do that, inventories rise. And IIUC, they didn't in 2008.
And I don't see another explanation from these guys. Am I missing something?
This is totally aside from Jordan's argument about how extreme futures market volatility can hurt real farmers and producers who use it and need it to hedge -- which is to say, pretty much all farmers and producers.
What I'm looking for is a causal chain for this futures-market-drives-the- spot-market argument that doesn't go through inventories (and so is compatible with the 2008 data -- unless I'm wrong on that data?)
Let me make clear, I'm totally sympathetic to this idea. I'm perfectly willing to say reality seems to work like this even if we can't yet explain why -- which is often the case in economics, in fact in the most interesting cases. And I have a pet theory of my own that I don't know how to check.
But unless I missing something, this Pollin/Jayati line -- like much argument I want to agree with -- just seems to be assuming what is to be proved.
Michael