Current Events in Economics

Current Events in Economics

Crude oil prices almost tripled between the spring of 2007 and the summer of 2008 (the
seasons in the Northern Hemisphere). There are two schools of thought as to the reasons
for the sharp run-up in prices and the future course for crude oil prices. One group argues
that the fundamentals of demand and supply explain the sharp movements in oil prices.
Another group claims that speculators and traders (e.g. Goldman Sachs) pushed up prices
well beyond the levels one would expect based on the fundamentals. Which group is
right? What are the implications for future oil prices, economic growth, and a number of
industries?

As a footnote, the U.S. Commodity Futures Trading Commission (CFTC), the principal
regulator of commodity markets, concluded (July 27, 2009) that purely financial traders,
who usually never take delivery of a product, have aggravated the violent swings in
energy prices in recent years. The CFTC chair recommended that the U.S. Government
seriously consider imposing strict limits on the trading of purely financial investors in the
futures markets for oil, natural gas and other energy products. Big buyers of oil-based
fuels, like airlines and municipal power companies, have complained about the violent
gyrations in energy prices and have been pushing Congress and the Commodity Trading
Futures Commission to rein in financial traders. Even if the U.S. Congress heeds the
advice of the CFTC chair, will this do anything to prevent financial traders from
engaging in speculative trading by migrating their activities to exchanges in other
countries?

3. Why do some companies pay enormous sums to advertise their products/services
during major sporting events such as the Super Bowl, Masters golf tournament, the
World Cup or the Olympics? Why do companies sponsor golfers, Formula One racing
cars, soccer teams, etc.?

4. Why do asset price bubbles occur? In the latter half of the 1990s, any public company
remotely connected to technology...

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