CFTC Commissioner Bart Chilton Comments on the Effect of Speculation on Commodity Prices

In a statement at the CFTC’s 2012 Research Conference, Commissioner Chilton suggests that there is “mounting evidence that speculation affects commodity prices”.  Citing a number of studies in favor of this claim, Commissioner Chilton states that the next position limits proposal from the CFTC will focus more on speculation studies. 

Citing to the song by Everclear, Commissioner Chilton says that Wall Street must “Be Careful What You Ask For.”  (Warning:  not something I would ever listen to, other than in the context of doing my day job.)

 

Lofchie Comment:   I think it is a really great thing that Commissioner Chilton is engaging in the discussion of whether position levels are beneficial, rather than simply taking the imposition of position limits as a given.  Here are some of the relevant questions: (i) What is the effect of large scale speculation on prices? (ii) What would be the benefits of reducing that speculation? (iii) What would be the costs? (iv) What would be the short-term and long-term economic consequences? (v) How effective would government be in actually imposing position limits and how flexible would it be as the situation changed?  I would also want to know how success or failure could or would be measured.   Personally, I don’t care a lot whether there are position limit rules (though, as a regulatory lawyer, I do benefit from there being rules of all types): I want to know that the rules we have make sense.

    I also wonder why, if the CFTC believes that there is a strong intellectual case for position limits, is it necessary for the CFTC to challenge the court decision that struck down the CFTC’s position limits rule?  I believe confidence in the government would be bolstered by the regulators making the cost-benefit arguments–without regard to which side wins the argument.  My point when the CFTC “lost” the position limits case was that it was a victory in disguise–because it freed the CFTC to adopt a position limits rule only if such a rule made sense, and not just because it had been ordered to do so.   See prior news statement and comment. 

Click here to view statement in full (links externally to CFTC website).
Click here to link to the paper that I found while searching for Commissioner Chilton’s first footnote.