The Basics of Speculation

Ricardo Hausmann presents a good, general article claiming that Biofuel Production can match Oil Production. The large-scale biofuel production would require a huge volume at current Consumption rates, and there are many problems associated with production of such volume, over and beyond the Food issue. The first Statement must be that Corn (maize to Those stupid enough to live elsewhere than the Midwest) could never provide the biofuel source at Production Costs low enough to act as alternative. Sugar Beets are the best bet on cultivated Crops, producing excellent quantities of Sugars at volumes comparable to Corn; it enjoys the advantage of more successful Solid fertilizers (non-petroleum Products), and is cultivable in any terrain acceptable to Corn. The trouble with both sources resides in the fact that neither are perennial Plants, and require an unenviable amount of tillage. Switchgrass has the volume and is perennial, but may not contain sufficient levels of Sugars. Genetics should bend it's gaze on Sugar Beets, as We really need perennial plants. My favorite, though, is Garbage and Sewage; God knows We create enough of Both, and We stay in the arena of petrochemicals, which still contain the Best Bang for the Buck.

A younger one of those astute Types asked me to define the basis for Speculation. I thought the Answer would be simple, right off the top of my head. I suddenly understood that I would have to establish an ideological definition for Speculation, which brought Visions of being hung; remember no one ever uses the effigy bit when it comes to me. Speculators utilize two facts to create Monopoly pricing to their benefit. The first fact is that there is an limited supply of anything, when placed in a critical Timeframe. The second fact consists of the knowledge there will be a consistent Demand level for the Product within that critical Timeframe, based upon actual Production need or extreme desire. Speculators also possess the knowledge that anywhere from about 14% to about 55% of the Buyers of such Products will not recognize their need for such Products until their entrance into the critical Timeframe. Speculators buy up excess Production of Product before the start of the critical Timeframe, and hold the Product until the pressures of Demand develop a Monopoly price which they will accept.

Study of this basic mechanism brings secondary considerations. The first is Product suppliers witness the higher, extorted Product prices, and think to capitalize on the Profits-taking, and hold onto the Monopoly prices previously utilized, for a creation of a new base Price for the Product. The second element consists of the knowledge that Speculators must revolve through a series of Products, as they need to buy at the standardized base Price, in order to profit from the creation of a Monopoly price for the Product. Speculation quickly establishes a general round of overall Product prices not grounded on Production Costs, but generating a vast increase in those selfsame Production Costs. Speculation is very bad for economic performance, and the more funds which are devoted to Speculation, the faster economic activity will be exhausted of both financial and physical resources. lgl