> Is there any doubt at all the rise in commodity stable prices is directly
> the result of banking speculator activities? Corner a market in some
> commodity that can be stored, store it, drive up the price, and bet on
> the rise in price in some form of derivative? At some peak, release the
> store at its highest and leave the market after collecting as much cash
> as possible.
Chuck,
Your description of the (possible) mechanism of a speculative bubble is superb! Now, the question here (which I found out browsing some of the earlier posts on the thread) is whether this is mainly a "speculative bubble" or a shift in "fundamentals" (ruling out the unlikely case of 50-50 split in causation). Again, Krugman thinks (after perusing data on food production, etc.) that it is the latter case. That is an empirical question that has to be settled, well, empirically. He thinks it's the crazy weather, which is a scary thing to ponder. At some point though, Shane intervened and denied the theoretical possibility of a speculative bubble (or it appears to me that he did). That triggered some back and forth with Jordan as well.
Clearly, using conventional definitions, that theoretical possibility does exist. Now, in my understanding, Michael Pollak's most recent posts refer back to the empirical argument. Michael seems to be asking -- Okay, where's the evidence then that the derivative market is pulling up the price in the spot market? Where are the inventories piling up? That is a very complicated empirical question, if you ask me. In the case of minerals, the inventories can be kept underground (e.g. oil not extracted). But in the case of food, the notion that farmers are on purpose keeping their land fallow because they are expecting the price to go up is a much harder case to make. The risk involved for farmers is huge. But then, if not, inventories should be piling up somewhere. Now, certain government agencies (and private interested parties as well) have very potent means of observation, but it's not impossible that these inventories are all dispersed among users of these commodities, not only industrial users but also household pantries! I can't tell you, man, lack of foresight or whatever, but my household has not been hoarding food. So far. :)