John McCain and Barack Hussein Obama are surely the weakest candidates for President when it comes to economics. Obama has no experience on supply and demand let alone anything else this side of community organizing.

John McCain, “Maverick Extraordinaire” admits he has little knowledge of economics and his staff must be right there with him as he has yet to offer and energy policy beyond sound bites criticizing the Socialist programs of National Oil and removing profits from Exxon of Mr. Obama.

Blame Game

Politicians teach us nothing about taking personal responsibility for our actions since they spend most of their time taxing, spending and blaming someone else for their foibles.

Oil prices are up and everyone in Washington D.C. is blaming George W. Bush, Dick Cheney, Big Oil, OPEC, ……..pick one or add to the list.

With little knowledge of economics the two “stalwart” candidates who would be President are now blaming Wall Street and “speculators” also known as future traders.

Playing Futures

When speculating on a futures trade with oil or any commodity their must be two sides, a buyer and a seller. Imagine that!

Speculation is similar to laying a bet at the roulette wheel in Vegas, you lay your bet on red that the price of oil will rise while the house bets oil will go down. There is risk involved on both sides, but the house usually wins.

In futures markets speculation helps control market volatility, major energy consumers such as refiners and airlines buy and sell futures contracts to lock in goods at a future price. The buyer is guessing about coming oil supply and demand, as well as the rate of inflation.

Bet wrong by placing all your chips on red and you lose. If a company purchases the future right to buy oil at $140 a barrel and it instead sells for $130, the option is worthless. Somebody has to take the other side of any futures contract: Some are trying to predict where the price will go in the future, while the other side is attempting to sell its future price risk. But no one knows how things will end up; it’s simply a price discovery mechanism.

Political Scapegoating

Barack Obama rolled out a proposal that will supposedly thwart market manipulation by “a few energy lobbyists and speculators.” John McCain responded that Mr. Obama was merely following his lead; last week, the Mr. McCain denounced “some people on Wall Street” for “gaming the system.”

We’re still waiting for a McCain energy plan and searching his website leads us back to stale speeches, political rhetoric and zero substances.

Mr. McCain calls such futures speculation ”reckless wagering.” But speculators are really managing the exposure risks of American businesses to higher oil prices, are not affiliated with major producers or consumers and provide liquidity to the market. Without this group of futures trader’s  exclusive commercial participants would determine markets and this is known as a cartel.

Fed-Up

The Wall Street Journal points out that:

Inflation does lead to a misallocation of resources, so it’s not surprising that the Federal Reserve’s weak dollar policy has driven investors to commodities to protect themselves. Loose monetary policy has caused price jumps across nearly all commodities, including surges in grains and precious and base metals. The Fed’s rate-cut bender is the most important reason oil is up so sharply since last August.

Supply and Demand

Energy consumption is surging in China and India, and global supply is not growing fast enough to keep up. Congress could do something useful if it opened up America’s vast natural resources, which are blocked by environmentalist protectionism.

It’s much easier for politicians to blame Wall Street instead of looking in the mirror to examine their own inept policies and inability to understand Economics 101. The answer to America’s energy policy is to open up the US ability to harness oil and gas reserves.

Don’t shoot the messenger; Obama and McCain should begin taking political responsibility for America’s energy problems. It’s the politicians stupid. Indeed!