The liquidity you're referring to is artificial because it exceeds the total production of the underlying commodities. If anything, that increases volatility because it allows prices to get pushed far in excess of what it would be if the players had to produce or accept delivery of some of the contracts they bought or sold.
great! All I know, is I love having liquidity...and to not have it would be much more detrimental than this "excess" liquidity you speak of. It comes down to this...markets cycle...was last year a freak event in the grains? Not really...maybe true for wheat, but look at corn...its done this before, more than once too...spikes up over a 2 year period, craters back down to the mean over a 2 year period....it happens, stop trying to regulate a "fair" price...thats what "price caps" are, and do you remember the 70's?? Don't think I really want to revisit that partner!! btw...in case you are too short sighted to see it on a chart, the last time grains did this was in 1996, long before "excess" liquidity.
They are 2 years late! They should have stepped in when Goldman drove up crude from $40 to $145. The bad boys have already cleaned up the bank and moved on to greener pastures.
Carbon markets will be yet another realm controlled by Goldman. Oil will continue to be controlled by Goldman. Either way, Goldman wins.
A futures contract is supposed to be an obligation to deliver a specified quantity of the underlying at a specific time and price. So, the only way you can create excess liquidity is to allow people to write naked contracts. IMHO, they should be called fraudulent contracts because there is no intent to ever deliver on the underlying. The end result is that you're not using futures to hedge your business, you're using it to transfer the risk of running your business to the general public who ultimately bears the brunt of the resultant and unrealistically high commodities prices. That, in a nutshell, is why this country has become so massively fucked up. Everyone wants to privatize their profit and socialize their loss. It's complete bullshit.
Hedger vs. Speculator I was able to follow you all the way up to that point, then I lost you on your conclusions. In the 1950's they used to teach socialization classes, where the (so called) collective good or citizenry obligations of living in a free society had valid expectations and responsibilities... they haven't taught those lessons in 3 generations. they sited the lack of social responsibility as a valid reason why so many MBA (B School) grads in corporate were able to run these banks, brokerages, mortgage frauds and rip off the populace without concern for the social welfare, right vs. just plain wrong and so forth. (Sunday NY Times extensive 3 page articles in the month between April 2009 - June 2009, not sure which date). so, perhaps that is what you might have been in reference to, but the facts in evidence seem to support your terse conclusion... FuBar!
Without liquidity there'll be huge spreads (which sucks for the commercials) and just a few players will be able to move the market all over the place, since they're not kept in check by large amounts of market players looking for precicely that. Anyway, I dont think that the position limits they're talking about will ruin the market. Making every market participant make or take delivery (even if only a small percentage) will hurt all market participants, since there will be a lot fewer of them (see paragraph 1).
What part of naked are you having trouble with? It doesn't matter if it's stock that's naked shorted, CDSs that are written without an underlying, options that are naked puts or futures contracts that are written without an underlying commodity to back it up. All of them create artificial supply, which begets artificial demand. It's that sort of manipulated speculation that's been a major part of where we got to where we are today. Whatever the cause(s), the fact is that unchecked greed has worked its way into pretty much every corner of society today. I don't know what's sadder though, the fact that we're living in the great unraveling, or as the bottle says -- lather, rinse, repeat...