Speculators: Real Threat to World Economy

  • 29 April 2008

The high rate of inflation in international markets has affected important sectors of the world economy. Consumer price indices have shot up in different parts of the world to unprecedented levels which has had an adverse impact on the standard of living of several people around the world and pushed millions of people below the poverty line.

Although several economic factors and reasons can be cited for the sudden rise in prices of essential commodities, few can ignore the fact that a large part for the present price hike across the world is not based on traditional economic factors and dynamics. This rise is largely due to the work of speculators at international stock markets who are exacerbating the problems and aggravating the crisis by spreading false fears and rumours, and are abetting monopolistic tendencies to jack up prices of goods and services, at the expense of millions of poor. Investing a large amount of money in essential goods—such as wheat, rice, raw materials, oil, precious minerals like gold, bonds, and securities—and then withdrawing it quickly is playing havoc with the markets of these commodities.

Recent years have seen an increase in the role of speculators, who are using geopolitical tensions as a factor for artificially creating crises. Speculative activity is amplifying the state of prices, and are following the interests of these speculators, who do not take any human considerations into account or even those the economic factors that would eventually undermine their own greedy practices.

No one can deny the fact that an increase in price of essential goods is because of rising population levels and economic growth in developing countries, like China and India. The impact of climate change on agricultural crops, in addition to economic and environmental transformations that have raised plans for raising crops for feeding about two billion human beings—who find themselves living below the poverty line—have now been diverted to the production of bio-fuels, according to World Bank reports. Still, without discounting this fact, few can deny that the current exponential increase in the price of essential commodities is not in sync with the conventional supply and demand dynamics. The substantial increase has a lot to do with the value of hedge fund and futures contracts in the world, which has increased by more than 28% in 2007 over the previous year, according to international estimates. This is a dangerous phenomena as speculation is causing uncertainty in the financial markets, and is plaguing a chronic and radical system.