pater_tenebrarum

The Proposal to Limit Commodity Positions Will Hurt Free Markets and Economic Growth

Circumscribing speculation in futures markets in order to 'control' prices (in the case of commodities, downward - in stock markets, restrictions are mainly aimed at short selling in order to manipulate prices upward) is bound to backfire. It may well lead to lower prices in the near term, as speculators exit the futures markets, but these lower near term prices are practically guaranteeing higher long term prices, as the incentive to invest in the production of the commodities concerned will be lessened. Furthermore, the government can not stop speculators from continuing to speculate, short of instituting a complete command economy. In all likelihood, restrictions in futures trading will lead to accumulation of physical product off-shore. This will then drive prices even higher, as real shortages will eventually ensue.
Price volatility in commodities is a poor argument for intervening in these markets by restricting access to them. Commodities have always, and will always be volatile. No government edicts will change this - the end result of restricting access for speculators will be a long term decline in living standards as thinner markets make it more difficult for producers to hedge, and both long term prices and price volatility will likely increase rather than decrease.
Markets often overshoot or undershoot the prices that would be justified by fundamentals, but this is in the nature of price discovery, which is a process, not an event. The idea that government can 'force' markets to conform to a more 'reasonable' manner of pricing is laughable in the extreme.
The main reason for rising prices is of course monetary inflation - and yet, the government is not abolishing the Federal Reserve, which is the cause of this inflation. So what this is really about is trying to control what is allowed to feel the effects of inflation - but it is an impossible task.